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Edited version of your written advice
Authorisation Number: 1012714825280
Ruling
Subject: Foreign lump sum payments
Question and answer
Are the foreign lump sum amounts assessable for income tax purposes?
No.
This ruling applies for the following periods:
Year ended 30 June 2014
Year ending 30 June 2015
The scheme commences on:
1 July 2013
Relevant facts and circumstances
You arrived in Australia with a working holiday visa.
Your partner subsequently obtained a 457 sponsor visa and you have had a defacto visa since that time.
You intend to stay in Australia and you are looking to purchase a house.
You have received four separate payments from a relative who is a non-resident to assist you.
Your relative also intends to send you another amount to assist you.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1997 Section 768-910
Income Tax Assessment Act 1997 Section 768-915
Income Tax Assessment Act 1997 Section 995-1
Reasons for decision
Section 6-5 and section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provide that the assessable income of a resident taxpayer includes ordinary and statutory income derived directly and indirectly from all sources during the income year.
Ordinary income
Ordinary income has generally been held to include three 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.
The payments you have received, and will receive in the future, will not be income from rendering personal services, income from property or income from carrying on a business. Further, while the payments can be said to be expected and relied upon, they have not been earned by you and will be too few in number for them to be said to have an element of periodicity, recurrence or regularity.
Therefore, the payments will not be assessable as ordinary income and do not have to be included in your income tax return.
Capital gains tax (CGT) provisions
Receipt of a lump sum payment may give rise to a capital gain (statutory income).
A capital gain can only occur if a 'CGT event' happens in relation to a 'CGT asset' as specifically provided for in the capital gains tax provisions.
However, as Australian currency is not a CGT asset, the receipt of the payments from your relative cannot give rise to a capital gain.
Temporary resident rules
Where you meet the requirements to be a temporary resident, the following rules will apply to any foreign income or capital gains you have:
• Income you derive from a foreign source will not be taxable if you are a temporary resident when you derive it, unless the income is remuneration from employment you perform overseas (section 768-910 of the ITAA 1997).
• A capital gain you make from the disposal of an asset located in a foreign country will be disregarded (section 768-915 of the ITAA 1997).
Section 995-1 of the ITAA 1997 states that you are a temporary resident if:
• you hold a temporary visa granted under the Migration Act 1958;
• you are not an Australian resident within the meaning of the Social Security Act 1991; and
• your spouse is not an Australian resident within the meaning of the Social Security Act 1991.
The Migration Act 1958 provides that a temporary visa is a visa to travel to and remain in Australia:
• during a specified period, or
• until a specified event happens, or
• while the holder has a specified status.
Temporary visas are distinguished from permanent visas which allow a person to remain in Australia indefinitely.
Under the Social Security Act 1991, an Australian resident is generally a person who resides in Australia and is either an Australian citizen or the holder of a permanent resident visa.
In your case, you and your partner hold temporary visas and are not Australian citizens.
Therefore, you have been a temporary resident of Australia since dd/mm/yyyy as you hold a temporary visa granted under the Migration Act 1958 and neither you nor your spouse are Australian residents within the meaning of the Social Security Act 1991.
Consequently, even if the foreign payments you received were assessable as income or capital gains, the temporary resident rules would apply to exempt these amounts from Australian tax.
Further information
If any part of the lump sums you received, or will receive) are invested and you earn interest on the funds, the interest income is regarded as ordinary income and therefore assessable under section 6-5 of the ITAA 1997.