Edited version of your written advice

Authorisation Number: 1012730393858

Ruling

Subject: Assessability of foreign pension

Question and answer

Are the weekly compensation payments you receive from overseas assessable in Australia?

Yes.

This ruling applies for the following periods:

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

The scheme commenced on:

1 July 2014

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You receive weekly compensation payments from overseas.

You have been receiving these payments for a number of years.

The payments were taxable overseas and ceased being taxed when you became an Australian resident for tax purposes.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5.

International Tax Agreements Act 1953 Section 4

International Tax Agreements Act 1953 Schedule 1 Article 19

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes the ordinary income they derived directly or indirectly from all sources, whether in or out of Australia, during the income year. 

Pensions and other similar periodic income replacement payments have the character of ordinary income.

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 Income Tax Assessment Act 1936 (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 overseas agreement is listed in section 5 of the Agreements Act.

The agreement between Australia and the overseas country operates to avoid the double taxation of income received by residents of Australia and the overseas country.

In your case it is necessary to establish how your weekly compensation payments are categorised for the purposes of Australia's tax treaty.

Taxation Determination TD 93/151 deals with how periodic workers' compensation payments made by Comcare are characterised for the purposes of Australia's tax treaty. 

TD 93/151 considers that Comcare payments are fixed periodical payments and that they are pensions within the ordinary meaning of that term and therefore fall within the Pensions Articles for the purposes of Australia's tax treaty. 

While the payments you are receiving are not paid by Comcare, they are similar to Comcare payments in that they are fixed periodical payments made in consideration of injury or loss sustained. As such the payments you are receiving are considered to be a pension for the purposes of the overseas Agreement. 

Article XX of the overseas Agreement deals with the taxation treatment of pensions and annuities. It provides that pensions (including government pensions) and annuities sourced in overseas and paid to a resident of Australia are taxable only in Australia. 

Consequently the weekly compensation payments from overseas are a pension for the purposes of the overseas Agreement and are taxable in Australia. 

Therefore the payments you receive are ordinary income and assessable under section 6-5 of the ITAA 1997 and must be included in your Australian tax return.