Edited version of your written advice

Authorisation Number: 1012879602707

Date of advice: 18 September 2015

Ruling

Subject: Assessability of foreign income

Questions and answers

1. Was the incentive award payment you received while you were residing in Australia derived from a source other than an Australian source and therefore non-assessable non-exempt income under subsection 768-910(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes.

2. Was the incentive award premium payment you received while you were residing in Australia derived from a source other than an Australian source and therefore non-assessable non-exempt income under subsection 768-910(1) of the ITAA 1997?

Yes.

3. Were the incentive award and premium payments you received after you were no longer residing in Australia assessable under section 6-5 of the ITAA 1997?

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a citizen of a foreign country.

You worked for a business in country X for a period of time before commencing employment in Australia with an Australian company which was a related entity to your former employer.

You entered Australia with a temporary visa which allowed you to stay and work in Australia.

You lived and worked in Australia for a period of time until you relocated to another country.

You were both a temporary resident and a resident of Australia for taxation purposes while you were residing in Australia.

During your previous period of employment in country X, you were eligible for an employee incentive award under the employment contract you had with your employer. The award was for a fixed cash amount plus a premium.

Payments under the incentive award, including the premium payments, were made to you in instalments; prior to your arrival in Australia, while you were residing in Australia, and following your departure from Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 Subdivision 768-R

Income Tax Assessment Act 1997 subsection 768-910(1)

Income Tax Assessment Act 1997 paragraph 768-910(3)(a)

Reasons for decision

Section 6-5 of ITAA 1997 provides that where you are a resident of Australia for taxation purposes, your assessable income includes ordinary income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only ordinary income derived from an Australian source. 

Section 6-5 of ITAA 1997 specifies that you are taken to have derived or received an amount of ordinary income as soon as it is applied or dealt with in any way on your behalf or as you direct.

Case law has established that the source of a taxpayer's income is the place where the services are performed: French v. FC of T (1957) 98 CLR 398.

Subdivision 768-R of the ITAA 1997 modifies the general tax rules for people in Australia who are temporary residents.

Subsection 768-910(1) of the ITAA 1997 specifies that the ordinary income you derive directly or indirectly from a source other than an Australian source is non-assessable non-exempt income if you are a temporary resident when you derive it.

However, the ordinary income you derive directly or indirectly from a source other than an Australian source will not be non-assessable non-exempt income to the extent that it is remuneration for employment undertaken, or services provided, while you are a temporary resident (paragraph 768-910(3)(a) of the ITAA 1997).

In your case, you lived and worked in Australia for a period of time and were a temporary resident of Australia during this period.

While you were residing in Australia, you received an incentive award payment plus a premium payment from your former foreign employer that related to employment duties you carried out in a foreign country prior to you becoming a temporary resident of Australia.

Consequently, it is evident that you received the payments from a foreign source while you were a temporary resident and the payments did not constitute remuneration for employment undertaken, or services provided, while you were a temporary resident.

Therefore, the payments you received while you were residing in Australia are non-assessable non-exempt income under subsection 768-910(1) of the ITAA 1997.

Following your permanent departure from Australia, you received a further incentive award payment plus a premium payment from your former foreign employer that related to employment duties you carried out in a foreign country prior to you becoming a tax resident of Australia.

Consequently, it is evident that you received the payments from a foreign source while you were a foreign resident.

Therefore, the payments you received while you were a foreign resident are not assessable under section 6-5 of the ITAA 1997.