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Edited version of private advice
Authorisation Number: 1052189760818
Date of advice: 7 November 2023
Ruling
Subject: Accessibility of foreign compensation payments
Question
Are monthly insurance payments received from Australian sourced Income Protection policies, and paid to a tax resident of Country A, assessable in Australia under section 6 - 5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
Taxation Determination TD 93/151 refers to the dictionary definition of pension. The Macquarie Dictionary, 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW defines 'pension' as 'a fixed periodical payment made in consideration of past services, injury or loss sustained, merit, poverty etc'. TD93/151 also refers to the conclusion of Hill J. in Tubemakers of Australia Ltd v. FC of T (1993) 25 ATR 183; 93 ATC 4207 that the essential characteristic of a pension is only that there be periodical payments.
Article XX of the Country A Convention deals with the taxation treatment of pensions. It provides that pensions (including government pensions) sourced in Country A and paid to a resident of Australia are taxable only in Australia and the reverse is also true. Therefore, as you are a resident of Country A, the proceeds received from your two income protection policies will be taxable in Country A only.
This ruling applies for the following periods:
Year ended 30 June 20XX
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You were an Australian resident until XX XX 20XX.
You permanently migrated to Country A with your Partner on XX XX 20XX.
You sold your property in Australia during the 20XX tax year.
You have acquired a new residence in Country A.
You consider yourself a tax resident of Country A, as Country A tax residency rules treat an individual as a resident if they spend more than 183 days in a financial year and / or have a permanent place of abode in Country A.
Prior to moving to Country A, and whilst living and working in Australia you acquired two Australian sourced insurance policies.
You sustained an injury which left you unable to work on a permanent full-time basis.
You made a claim on both of your insurance policies. These claims were accepted in XX 20XX.
You are now able to work part-time however, continue to receive monthly benefits from both policies.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5
International Tax Agreements Act 1953