Edited version of your private ruling

Authorisation Number: 1012130867899

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Subject: Assessability of compensation payment

Question and answer:

Are you exempt from paying tax on your incapacity payments received under the Safety Compensation Rehabilitation Act 1988?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commences on:

X xxx 2008

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are not a resident of Australia for tax purposes from the date of your departure in 200X as determined by a private ruling.

You are not currently living in Australia and haven't been since 200X.

You are living in country Y.

You receive ongoing payments from the Australian Government under the Safety Compensation Rehabilitation Act 1988.

The payments you receive are for loss of wages.

The payment is ongoing and regular.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Subdivision 52-B

International Tax Agreements Act 1953 Section 4

International Tax Agreements Act 1953 Section 5

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that:  

Are earned;

Are expected;

Are relied upon; and

Have an element of periodicity, recurrence or regularity.

Payments of salary and wages are income according to ordinary concepts and are included in assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

An amount paid to compensate for loss generally acquires the character of that for which it is substituted. Compensation payments which substitute income have been held by the courts to be income under ordinary concepts.

Are the Payments you Receive Exempt Income?

Payments made by the Australian Government that are of a similar nature to exempt payments listed in section 52-60 to 52-110 of the ITAA 1997 (those paid under the Veterans Entitlements Act 1986) are also exempt.

An amount paid to a former soldier under the Safety, Rehabilitation and Compensation Act 1988 has been found to not be exempt income as it was in the nature of workers compensation and not similar to an income support pension payable to war widows and widowers under the Veterans Entitlements Act 1986 (Davy v FC of T 2003 ATC 2155).

The payments you receive are for loss of wages and are paid under the Safety, Rehabilitation and Compensation Act 1988 so are therefore not exempt income.

Double Tax Agreement (DTA) and 'Pension'

Double Tax Agreement

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The country Y Agreement is listed in section 5 of the Agreements Act.

Article z of the Agreement between Australia and the country Y deals with the taxation treatment of pensions. Article z states that pensions paid to a resident of one of the Contracting states shall only be taxable in that State.

Pension'

Taxation Determination TD 93/151 Income tax: are periodic workers' compensation payments made by Comcare, 'pensions' for purposes of the pensions articles in Australia's double taxation agreements? states that as the term 'pension' is not defined in any of Australia's double tax agreements; it therefore takes on its ordinary meaning under Australian domestic law.

The ordinary domestic law meaning, contained in the Macquarie Dictionary is:

(1) a fixed periodical payment made in consideration of past services, injury or loss sustained, merit, poverty etc; or (2) an allowance or annuity.

Taxation Determination TD 93/151 states that:

"Payments made by Comcare under section 19 of the Commonwealth Employees Rehabilitation and Compensation Act 1988 are fixed periodical payments made in consideration of injury or loss of wages. They are therefore pensions within the ordinary meaning of that term and fall within the operation of the Pensions Article in Australia's DTAs.

You are in receipt of a compensation payment for loss of wages under the Safety, Rehabilitation and Compensation Act 1988. This act provides the legislative basis for the Commonwealth workers' compensation scheme. The payments you receive are similar to those paid out under the Commonwealth Employees Rehabilitation and Compensation Act 1988. Therefore the amounts you receive are also a pension and fall within the operation of Article z in the Agreement.

As you are not a resident of Australia for tax purposes, the pension you receive under the Safety, Rehabilitation and Compensation Act 1988 is not taxable in Australia under Article z of the Agreement.