Edited version of private advice

Authorisation Number: 1052161366712

Date of advice: 31 August 2023

Ruling

Subject: Foreign source income

Question 1

Is your employment income (salary and lumpsum) derived by you in the financial year considered non-assessable non-exempt?

Answer

Yes.

Based on the information provided to the Commissioner, your employment income consisting of salary and lump sum payments derived in the income year are non-assessable non-exempt.

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 income you derived in the income year does not have an Australian source.

The Double Tax agreement between Australia and Country Z also gives Country Z the taxing rights to the salary and bonus payment.

The salary and bonus income paid by the employer is excluded from your assessable income on the basis it is foreign sourced income received by a foreign resident.

Question 2

Is the employment termination payment (ETP) derived by you in the financial year non-assessable non-exempt in full?

Answer

Yes.

Based on the information provided to the Commissioner, the payment you received in the income year is non-assessable non-exempt in full.

Section 10-5 of the ITAA 1997 lists section 82-10 of the ITAA 1997 as a provision which includes statutory income in assessable income.

Further, subsection 6-10(5) of ITAA1997 states that if you are a foreign resident, your assessable income includes:

(a) your statutory income from all Australian sources; and

(b) other statutory income that a provision includes in your assessable income on some basis other than having an Australian source.

The ETP you received in the income year was based on your entire employment with Employer Z.

You have never carried out any work in Australia for Employer Z.

The ETP is therefore non-assessable non-exempt in full.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a Country Z citizen, and you are not an Australian citizen.

You are not an Australian permanent resident.

You do not reside in Australia.

Your spouse is not an Australian citizen, nor has she resided in Australia and is a not a tax resident of Australia.

You do not have any intention to apply for permanent residency or to permanently reside in Australia.

You and your spouse have never worked in Australia and do not have any ties to Australia.

You have resided permanently in Country Z following the completion of your last international work assignment with your employer overseas.

You are considered a tax resident of Country Z.

You and your spouse are both considered tax non-residents of Australia for the whole of the relevant tax year.

As a tax resident of Country Z for domestic tax purposes, you are a resident solely of Country Z and for the purposes of the DTA.

You have worked for your employer for a number of years.

During the employment period, your employment was working for Employer Z outside of Australia in a number of different countries.

You never worked in Australia for your entire employment period with Employer Z.

In the last few years, you were on an international assignment from your employer in Country Z to a related entity of your employer.

Your base country employment contract was with a related entity in Country Z.

As part of a restructure, your base country employer changed to Employer Z in Australia, and Employer Z divested the Country Z business.

You remained on secondment to Employer Z in a different country and did not provide any employment services in Australia.

At the end of your secondment you repatriated to Country Z and your employment was subsequently terminated.

In the absence of an employer entity in your home location Employer Z in Australia paid your salary for services over several months.

In the absence of an employer entity in your home location Employer Z in Australia paid you a Lump sum for the relevant year.

In the absence of an employer entity in your home location, Employer Z in Australia paid you an Employee Termination Payment.

The Employer Z redundancy terms provided to you set out the terms of the termination payment with a payment calculated by reference to your entire service period with Employer Z.

Your severance communications from Employer Z in Australia included reference to the company's redundancy policy being based upon total years of service with Employer Z worldwide.

You have correspondence from Employer Z in Australia explaining that the severance payment amount was determined in accordance with total global 'years of service and final salary'.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5