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Edited version of private advice
Authorisation Number: 1051569189047
Date of advice: 20 August 2019
Ruling
Subject: Assessability of a foreign disability compensation payment
Question
Is the disability compensation payment received from Country Y assessable in Australia?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are an Australian resident for tax purposes.
Prior to your arrival in Australia you lived and worked in Country Y for private enterprise.
During your time working in Country Y you suffered a work related injury for which you are paid a periodic disability compensation payment.
In order to continue to receive the payments you are required to submit a 'Proof of being alive' form on a regular basis throughout the year.
The form must be signed and verified by a Justice of the Peace.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 995-1
Income Tax Assessment Act 1936 subsection 6
International Tax Agreements Act 1953 Article 21
Reasons for decision
Double Tax Agreements (DTA)
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 Income Tax Assessment Act 1997 (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).
The Country Y Agreement operates to avoid the double taxation of income received by residents of Australia and Country Y.
An article in the agreement between Country Y and Australia outlines the taxing rights of the contracting states for pensions and annuities, saying that if it is paid to a resident of a State it is only taxable in that State.
The agreement operates to avoid the double taxation of income received by residents of Australia and Country Y.
Foreign disability benefit
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources, whether in or out of Australia during an income year.
The major characteristics of ordinary income which have been identified by the Courts are as follows:
· it is earned (as a result of work performed)
· it is received regularly
· it is expected
· it is depended upon
· it supplements income
· it replaces income.
The disability benefit that you receive is a periodical payment; it is expected and also relied upon. Therefore this benefit is considered ordinary income according to ordinary concepts and is assessable under section 6-5 of the ITAA 1997.
Accordingly, the disability benefit that you receive from Country Y Authorities is assessable under subsection 6-5(2) of the ITAA 1997.