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Edited version of your private ruling
Authorisation Number: 1012616600476
Ruling
Subject: Assessability of income protection premium payments
Question and answer:
Are the payments you receive from your Australian income protection insurance policy assessable in Australia?
No.
This ruling applies for the following periods:
Year ending 30 June 2009
Year ending 30 June 2010
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
The scheme commences on:
1 July 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 lived and worked in Australia.
While in Australia you took out an income protection policy with an Australian provider.
You left Australia and moved to Country T.
Shortly after leaving Australia, you sustained a workplace injury.
As a result of the injuries that you sustained, you made a claim against your income protection policy.
You have been in receipt of ongoing monthly payments from your Australian income protection provider. The payments represent a percentage of the monthly salary that you earned whilst employed in Australia.
You have been declaring this income to the Country T Authorities.
Since departing Australia you have remained in Country T and are a resident of Country T for income tax purposes.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(3).
International Tax Agreements Act 1953 Section 4.
International Tax Agreements Act 1953 Schedule Sch11.
International Tax Agreements Act 1953 Sch11-Art19(1).
Reasons for decision
Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident includes ordinary income derived directly or indirectly from Australian sources.
Workers compensation payments are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.
Therefore, as you are a foreign resident and the compensation payments that you are in receipt of is sourced from Australia, these payments will be assessable in Australia under subsection 6-5(3) of the ITAA 1997.
Country T 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 T Agreement is listed in section 5 of the Agreements Act.
The Country T Agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country T Agreement operates to avoid the double taxation of income received by residents of Australia and Country T.
Country T Agreement Article XX
Article XX(1) of the Country T Agreement provides that an Australian-sourced pension or annuity received by a resident of Country T will be exempt from tax in Australia.
The term pension is not defined in the Country T Agreement.
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 (DTAs)?, discusses the application of pension articles in Australia's tax treaties in the context of periodic compensation payments made by Comcare.
To look towards defining the word 'pension', Taxation Determination TD 93/151 refers to the dictionary definition of pension. The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW defines a pension as a fixed periodical payment made in consideration of past services, injury or loss sustained, merit, poverty etc. TD 93/151 also refers to the conclusion of Hill J. in Tubemakers of Australia Ltd v. FC of T (1993) 25 ATR 183; 93 ATC 4207 that the essential characteristics of a pension is only that there be periodical payments.
Although TD 93/151 discusses payments made by Comcare, the same principles can be applied to payments received from other insurance providers.
In your case, as a result of a workplace injury, you have been in receipt of monthly payments from an Australian income protection insurance provider. As these payments have/are being made due to a workplace injury and are periodic in nature they therefore fall within the definition of a pension.
As your income protection payments fall with the definition of a pension and you are a resident of Country T for income tax purposes, Article XX(1) of the Country T Agreement will operate to exempt this income from being assessable in Australia.
Accordingly, the payments that you receive from your income protection policy are not assessable in Australia under Article XX(1) of the Country T Agreement.