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Edited version of private advice
Authorisation Number: 1051508655500
Date of advice: 9 May 2019
Ruling
Subject: International residency and income
Question 1
Is any part of your severance payment assessable as a foreign termination payment?
Answer
No
The severance payment paid by your overseas employer in 20XX is not assessable income and not exempt income (NANE) because it was received in consequence of the termination of employment service in a foreign country and the payment relates solely to a period of employment when you were not an Australian resident.
Consequently, this amount is not included in your tax return.
Question 2
Will foreign income including salary and a lump sum payment of unused annual and long service leave be assessable in Australia?
Answer
No
Australia has a tax treaty with the country of your prior employment which operates to avoid the double taxation of income.
The tax treaty with the country of your overseas employer provides that salaries, wages and other similar remuneration derived by an individual who is a resident of that state in respect of an employment shall be taxable only in the overseas country unless the employment is exercised in Australia.
Accordingly, the lump sum payment for annual leave and final salary accrued while you were a non-resident of Australia and working overseas, is not assessable in Australia under subsection 6-5(3) of the ITAA 1997 and is not included in your tax return.
This ruling applies for the following period
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You were granted a Skilled Independent Visa in 20XX. The conditions of the visa allow you to stay in Australia indefinitely.
As per the visa conditions you first came to Australia in 20XX for 2 weeks and returned overseas where you had employment and a home.
You continued living and working overseas until 20XX when you returned to Australia permanently and became a resident for tax purposes from that date.
You received two payments after you became a resident of Australia for tax purposes from your overseas employer.
The total gross payments received represent only a portion of your yearly wages from your overseas employer.
These payments were composed of various components including a severance payment as well as unpaid salary, unpaid leave, unpaid super and a portion of your regular yearly bonus.
Tax was withheld by the employer.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 23AI
Income Tax Assessment Act 1936 section 23AK
Income Tax Assessment Act 1997 Subsection 6-5(3)
Income Tax Assessment Act 1997 Section 6-10(5)
International Tax Agreements Act 1953