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Ruling
Subject: Compulsory overseas insurance payments deducted from salary
Questions and answers
Are you entitled to a deduction for contributions made to the Country X Insurance Scheme?
No.
Are you entitled to a tax offset for contributions made to the Country X Insurance Scheme?
No.
This ruling applies for the following periods:
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
You are an Australian resident for tax purposes.
You are currently working in Country X.
Your employer deducts tax and an amount for Country X Insurance Scheme contributions from your wages.
The Insurance contributions are levied by Country X government on wages and goes towards providing a pension upon retirement.
You believe that the amounts withheld as Country X Insurance Scheme contributions are a tax levied upon you as a consequence of your employment and earning of assessable income.
Relevant legislative provisions:
Income Tax Assessment Act 1997 Section 8-1.
Income Tax Assessment Act 1997 Division 770.
Reasons for decision
Deductibility of Country X Insurance Scheme contributions
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
In your case, you have had payments taken directly from your Country X salary as a contribution to the Country X Insurance Scheme, as required by Country X authorities.
These amounts are not expenses you have incurred in the course of gaining or producing your assessable salary and wage income, but rather are incurred because it is a requirement of Country X authorities that you make the contributions as you earn salary and wage income over a certain threshold. The fact that the payments are compulsory does not make them deductible.
Therefore, you are not entitled to a deduction for the amounts taken directly from your Country X salary as contributions to the Country X Insurance Scheme.
Tax offset for Country X Insurance Scheme contributions
According to Division 770 of the ITAA 1997, to count towards a foreign income tax offset, foreign income tax must be imposed under a law other than an Australian law and be:
· a tax on income
· a tax on profits or gains, whether of an income or capital nature, or
· any other tax that is subject to an agreement covered by the International Tax Agreements Act 1953.
The payments taken directly from your Country X salary as a contribution to the Country X Insurance Scheme are not a tax on income, or a tax on profits or gains, or a tax that is subject to an agreement covered by the International Tax Agreements Act 1953.
Therefore, you are not entitled to a tax offset for the amounts taken directly from your Country X salary as contributions to the Country X Insurance Scheme.