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Edited version of your private ruling
Authorisation Number: 1012512923889
Ruling
Subject: Foreign source child support payments
Question and answer
Is your foreign source child support income assessable for income tax purposes?
No.
This ruling applies for the following periods
Year ended 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commenced on
1 July 2012
Relevant facts and circumstances
You are an Australian resident for income tax purposes.
You are in receipt of regular child support payments from your ex-spouse.
The payments are made in relation to the children you and your ex-spouse had together.
The payments are made by your ex-spouse to a bank account in country X.
Your ex-spouse is a resident of country X.
Your ex-spouse is a salary and wages earner.
The child support payments are made from the taxable income of your spouse.
Your ex-spouse has not sold any assets in order to make the child support payments to you.
Your ex-spouse did not own any property or any other significant assets when you divorced some years ago.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-15
Income Tax Assessment Act 1997 Section 51-1
Income Tax Assessment Act 1997 Section 51-30
Income Tax Assessment Act 1997 Section 51-50
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived from all sources during the income year. However, an amount will not be included in assessable income if the amount is exempt income.
Section 51-30 of the ITAA 1997 provides that periodic payments in the nature of maintenance are exempt from income tax as long as they meet the requirements of section 51-50 of the ITAA 1997. Maintenance payments are those made for the support of a spouse or children.
Section 51-50 of the ITAA 1997 specifies that maintenance payments are exempt from income tax only if they are made:
· by an individual (the maintenance payer) or are attributable to a payment made by the maintenance payer; and
· to an individual who is or has been the maintenance payer's spouse; or
· to or for the benefit of an individual who is or has been,
- a child of the maintenance payer; or
- a child who is or has been a child of an individual who is or has been a spouse of the maintenance payer.
However, the payments will not be exempt where, in order to make the payments, the maintenance payer has divested any income-producing assets or diverted any income on which the payer would otherwise have been liable for income tax.
In determining liability to tax on foreign sourced income received by an Australian resident taxpayer it is necessary to consider not only the Australian income tax laws but also any applicable double tax agreement that is cited in the International Tax Agreements Act 1953.
Country X and Australia have signed a double tax agreement (the agreement).
While maintenance, or child support, payments are not specifically addressed in the agreement, the taxation of these payments is covered by an article of the agreement relating to other income. The article provides that income received by a resident of Australia will be assessed for taxation purposes in Australia even if the income is sourced in country X. This means that these payments will only be taxed in Australia if the legislation provides for it.
In your situation, you receive regular child support payments from your ex-spouse in country X which are made in relation to the children you had together. The payments are made from the taxable income of your ex-spouse who has not disposed of any income-producing assets in order to make the payments to you.
Therefore, the payments you receive are exempt from income tax in accordance with section 51-50 of the ITAA 1997 and are not assessable income under section 6-5 of the ITAA 1997.
The child support payments you receive are not taxable in Australia and do not have to be included in your income tax return.