Edited version of private advice

Authorisation Number: 1051785754382

Date of advice: 30 November 2020

Ruling

Subject: Income - assessable

Question

Will the compensation payments received as a non-resident from Organisation A be an assessable income under s6-1 of the Income Tax Assessment Act 1936 (ITAA36)?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2019

The scheme commenced on:

1 July 2018

Relevant facts and circumstances

You advised that you are the child of an employee who died while working for their employer in Mid- 20XX.

You are now in receipt of compensation payments from Organisation A. The payments are assessed annually and began in the 20XX financial year when you were living with your family in Australia.

Your family has now returned to live in Country A, and you have accompanied your family as a minor. You are now a resident of that country.

Relevant legislative provisions

Income Tax Assessment Act 1936, section 6-1

Income Tax Assessment Act 1997, section 6-5

Convention between the Government of Australia and the Government of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital Gains (The Country A Convention)

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source.

The terms 'resident' and 'resident of Australia', regarding an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

•         the resides test,

•         the domicile test,

•         the 183-day test, and

•         the superannuation test.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides. However, where an individual does not reside in Australia according to ordinary concepts, they may still be a resident of Australia for tax purposes if they meet the conditions of one of the other three tests.

You have accompanied your family to live in Country A and hence are no longer a resident of Australia. You are now a resident of Country A.

The Taxation Determination TD 93/151 Income tax: are periodic workers' compensation payments made by Comcare, 'pensions' for purposes of the pensions articles in Australia's double taxation agreements (DTAs)? considers that Comcare payments are fixed periodical payments that are pensions within the meaning of that term. Therefore, such pensions fall within the pension articles for the purposes of Australia's double taxation agreements, including the double tax agreement with Country A.

The relevant Convention states at Article XX -

Pensions and annuities

1 Pensions (including government pensions) and annuities paid to a resident of a Contracting State shall be taxable only in that State.

As you now are a resident of Country A, and as this income is defined as a pension, it falls within the pension articles of Australia's double tax agreements. Therefore, this pension income is taxable only in the jurisdiction it is received. In your case as you are a resident of Country A, it will be taxable in that country.