Edited version of private advice

Authorisation Number: 1052235837304

Date of advice: 26 March 2024

Ruling

Subject: Exemption - compensation payments

Question

Are the compensation payments you receive from a foreign Government considered exempt income under subsection 768-105(1) of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June XXXX

Year ended 30 June XXXX

Year ending 30 June XXXX

Year ending 30 June XXXX

Relevant facts and circumstances

You are an Australian resident for taxation purposes.

You were born in a foreign country before the Second World War. When your home country was occupied by Germany during the Second World War you and your family fled to another country.

You left your home country during your teenage years.

You did not work in your home country and you are not entitled to any regular pension.

You moved to Australia and subsequently became an Australian citizen.

You are entitled to compensation from your home country Government for your suffering, discrimination and persecution during the Second World War.

You have received this income during an earlier financial year from your home country Government and it will continue as long as you live.

The amount you receive is paid quarterly.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 768-105

Reasons for decision

Certain foreign compensation payments arising from incidents in the Second World War are exempt from income tax under section 768-105 of the ITAA 1997. The payments may be a pension, annuity, allowance or lump sums.

To be exempt the payments must satisfy all of the following conditions:

1.    You must be an Australian resident for tax purposes when the payments are received.

2.    The payments must be sourced from a foreign country

3.    The payments must be related to wrong or injury, loss of or damage to property or any other detriment suffered by you in relation to the Second World War. Specifically, these disadvantages must be as a result of:

a.    persecution by the Nazi regime of Germany;

b.    persecution during the Second World War by any other enemy of the Commonwealth or a regime that was in alliance with, occupied by, effectively controlled by, under duress from or surrounded by the Nazi regime of Germany or any other enemy of the Commonwealth;

c.     flight from such persecution; or

d.    participation in a resistance movement during the Second World War against forces of the Nazi regime of Germany or of any other enemy of the Commonwealth.

4.    The payments must not be directly or indirectly from an "associate" of you. Under subsection 318(1) of the Income Tax Assessment Act 1936 the associates of a natural person (other than in the capacity of trustee) are:

a.    a relative;

b.    a partner of the person or a partnership in which the person is a partner;

c.     if a partner of the person is a natural person otherwise than in the capacity of trustee - the spouse or a child of that partner

d.    a trustee of a trust where the person, or another entity that is an associate of the person because of another paragraph of subsection 318(1), benefits under the trust, or

e.    a company which is controlled by the person.

You were an Australian resident at the time the first payment was made and you continue to be an Australian resident. The compensation is being paid as a result of your suffering, discrimination and persecution after your home country was occupied by Germany and you and your family fled another country during the Second World War. The payments are being paid by your home country Government under its law and are not directly or indirectly from any of your associates.

The payments fall within the meaning of subsection 768-105(1) of the ITAA 1997 and are exempt from tax in Australia.