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Edited version of your written advice
Authorisation Number: 1051301720162
Disclaimer
You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.
The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.
Date of advice: 30 October 2017
Ruling
Subject: International Income - Income Replacement Policy
Question 1
Are the income protection payments you receive assessable income in Australia?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 20XX
Year ended 30 June 20XX
Year ended 30 June 20XX
The scheme commences on:
Spring 20XX
Relevant facts and circumstances
You were born in Country A and are an Australian citizen. In Spring 20XX you suffered a medical emergency and have suffered another emergency since that date.
As a result you claimed income protection payments from your insurance policy with an Australian insurance company. Under this policy you anticipate receiving income protection payments until you reach retirement age.
In Spring 20XX you returned to Country A and are now non-resident for Australian taxation purposes.
The income protection payments are exempt in Country A under the local taxation act.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(3).
International Tax Agreements Act 1953 Section 4.
International Tax Agreements Act 1953 Section 5
Double Tax Agreement Australia and Country A
Reasons for decision
Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident includes ordinary income derived directly or indirectly from Australian sources.
Workers compensation payments are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.
Therefore, as you are a foreign resident and the compensation payments that you are in receipt of is sourced from Australia, these payments will be assessable in Australia under subsection 6-5(3) of the ITAA 1997.
Double Tax Agreement (DTA) Country A
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 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 Country A Agreement is listed in section 5 of the Agreements Act.
This Double Tax Agreement operates to avoid the double taxation of income received by residents of Australia and Country A.
In essence, this Agreement sets out that “items of income” which have an Australian source may be taxed in Australia.
In your case, as a result of a workplace injury, you have been in receipt of monthly payments from an Australian income protection insurance provider. As these payments are being made due to an illness and are periodic in nature they therefore fall within the definition of other income (i.e. income designed to replace your salary).
As your income protection payments fall with the definition of other income; the Country A Double Tax Agreement does not prevent this income being assessable in Australia.
Accordingly, the payments that you receive from your income protection policy are assessable in Australia under subsection 6-5(3) of the Income Tax Assessment Act 1997.