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Edited version of your written advice
Authorisation Number: 1051360526275
Date of advice: 11 April 2018
Ruling:
Subject: International – National Insurance Contribution (NIC)
Are you entitled to claim a compulsory National Insurance Contribution (NIC) as a tax deduction against your foreign income from Country Y?
Answer
No
This ruling applies for the following periods:
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are an Australian resident for tax purposes.
You are currently working in Country Y.
Your employer deducts tax and an amount for the NIC’s from your wages.
The NIC’s are levied by Country Y’s government on wages and goes towards providing a pension upon retirement.
You believe that the amounts withheld as Country Y’s National Insurance Contributions are a tax levied upon you as a consequence of your employment and earning of assessable income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Division 770
Reasons for decision
Deductibility of Country Y’s National Insurance contributions
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
In your case, you have had payments taken directly from your salary as a contribution to Country Y’s National Insurance, as required by the authorities.
These amounts are not expenses you have incurred in the course of gaining or producing your assessable salary and wage income, but rather are incurred because it is a requirement of Country Y’s authorities that you make the contributions as you earn salary and wage income over a certain threshold. The fact that the payments are compulsory does not make them deductible.
Therefore, you are not entitled to a deduction for the amounts taken directly from your salary as contributions to Country Y’s National Insurance.
Tax offset for National Insurance contributions
According to Division 770 of the ITAA 1997, to count towards a foreign income tax offset, foreign income tax must be imposed under a law other than an Australian law and be:
● a tax on income
● a tax on profits or gains, whether of an income or capital nature, or
● any other tax that is subject to an agreement covered by the International Tax Agreements Act 1953.
The payments taken directly from your salary as a contribution to the Country Y’s national insurance are not a tax on income, or a tax on profits or gains, or a tax that is subject to an agreement covered by the International Tax Agreements Act 1953.
Therefore, you are not entitled to a tax offset for the amounts taken directly from your salary as contributions to Country Y’s National Insurance.
Further information for you to consider:
Please note that if you receive the UK State Pension in the future, the pension will have to be included in your Australian assessable income if you are a resident of Australia, however, as you have contributed to this pension, you are entitled to a deductible amount for the Undeducted Purchase Price (UPP) of your pension. This will reduce the taxable amount of your pension.
More information regarding UPPs is available from our website www.ato.gov.au.
Income protection insurance benefits are payable when the policyholder becomes incapacitated or unemployed, the NIC’s is payable on retirement as a state pension. You pay NIC’s to qualify for certain benefits, it is a system of taxes paid by workers and employers, used primarily to fund state benefits.
You can only claim Country Y’s state pension if you have paid or been credited with National Insurance contributions (NIC) – these are Country Y’s social security contributions. If you are eligible for Country Y’s state pension, you cannot normally get it until you reach state pension age.
ATO view documents
Straightforward interpretation of law
Other relevant comments
I have complied with Practice Statements PS LA 2002/16 and PS LA 2003/9 in the completion of this report by checking the Technical Reference Search Engine, and using ORCLA.