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Edited version of your written advice
Authorisation Number: 1013109838367
Date of advice: 7 November 2016
Ruling
Subject: Compensation
Question 1
Are the restitution payments made to you by the Government of the foreign country A assessable?
Answer
No.
Question 2
Is a one-off payment made to you by the Government of foreign country A assessable?
Answer
No.
This ruling applies for the following period(s)
Year ended 30 June 201X
Year ending 30 June 201X
Year ending 30 June 201X
Year ending 30 June 201X
The scheme commences on
1 July 201X
Relevant facts and circumstances
You are a resident of Australia.
You are an aged Australian pensioner who is receiving a payment from the government of foreign country A under an assistance scheme for victims of War.
The payment has two components:
● a restitution amount; and,
● an amount to assist with care relating to a Post-Traumatic Stress Disorder (PTSD) from your internment as a prisoner of war.
You have only recently become aware that these payments may be taxable and are concerned that tax returns have not been lodged. If these payments are taxable, there may be a need to lodge tax returns dating back a number of years. While any tax payable will be small, you are very concerned and distressed about any penalties that may be applied.
You also received a one-off payment from the government of foreign country A under a backpay to people who were working for a foreign government at the time they became a prisoner of war. This payment is free of any tax or other deductions in foreign country A. This payment is considered more in the nature of gift to you by them.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-20
Income Tax Assessment Act 1997 Section 768-105
Reasons for decision
Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes income from ordinary concepts derived from all sources whether in or out of Australia.
Section 6-20 of the ITAA 1997 states that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of this Act.
Section 768-105 of the ITAA 1997 provides that compensation arising out of the War is exempt from income tax in Australia if:
(a) you are an Australian resident at the time when it would otherwise be included in your assessable income; and
(b) the payment is from a source in a foreign country; and
(c) the payment is in connection with:
(i) any wrong or injury; or
(ii) any loss of, or damage to, property; or
(iii) any other detriment;
You are an Australian resident. You have received restitution payments and a one-off payment from foreign country A. The payments are in connection with the ongoing care relating to a PTSD and loss of salary resulting from your internment as a prisoner by foreign country B during the War. Therefore, both payments are exempt from income tax in Australia under section 768-105 and, therefore, exempt from income tax under section 6-20 of the ITAA 1997.