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Edited version of your written advice
Authorisation Number: 1012993290107
Date of advice: 20 May 2016
Ruling
Subject: Lump sum payment
Question
Are your redundancy and employer termination payments assessable in Australia under the DTA between Australia and the foreign country?
Answer
No.
This ruling applies for the following period:
Year ending 30 June 2016
The scheme commences on:
1 July 2015
Relevant facts and circumstances
You received a redundancy and employer termination payment in the 2015-2016 income year from your foreign country based former employer (the Employer).
You are an Australian resident and you were a permanent employee of the Employer.
Documentation has been provided by you in relation to the circumstances of your employment being terminated and payments received which included a lump sum payment.
You were taxed on these payments in a foreign country.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Subsection 52-10(1A)
International Tax Agreements Act 1953 Section 4
Reasons for decision
Summary
The lump sum payment you received in not taxable in Australia and hence no Foreign Income Tax Offset is available.
Detailed reasoning
The facts provided show your position was made genuinely redundant and you subsequently received a lump sum payment from your overseas employer.
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 directly or indirectly from all sources, whether in or out of Australia, during the income year.
Assessable income consists of ordinary income and statutory income provided it is neither exempt nor non-assessable non-exempt income.
Subsection 6-10(2) of the ITAA 1997 provides that an amount is statutory income if it is not ordinary income but is included in assessable income by another provision.
Section 10-5 of the ITAA 1997 lists the provisions about assessable income. Included in this list is section 305-70 of the ITAA 1997.
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 agreement in relation to the relevant foreign country is listed in section 5 of the Agreements Act.
The agreement operates to avoid the double taxation of income received by residents of Australia and the relevant foreign country.
An Article in the Double tax Agreement (DTA) between Australia and the foreign country considers the lump sum payment that you received is only taxable in the first mentioned State, that is, the foreign country.
As such, this payment is not taxed in Australia and no Foreign Income Tax Offset is available.