ATO ID 2004/69: Assessability of maintenance payments received by Canadian resident from Australia
Date of decision: 9 January 2004
Year of income: Year ending 30 June 2004
Business line: Public Groups and International

Issue
Are maintenance payments sourced in Australia and received by a Canadian resident taxpayer assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. Maintenance payments sourced in Australia and received by a Canadian resident taxpayer will be not assessable under subsection 6-5(3) of the ITAA 1997.

Facts
The taxpayer is a Canadian resident for income tax purposes. The taxpayer is separated from their spouse and divorce proceedings are pending. The taxpayer's spouse resides and works in Australia. The taxpayer receives maintenance payments from their estranged spouse.

Reasons for decision
Summary: Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non resident taxpayer includes ordinary income derived directly or indirectly from Australian sources during the income year. Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income. Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 51-50 of the ITAA 1997 which deals with maintenance payments. Paragraph 51-50(2)(a) of the ITAA 1997 provides that periodic maintenance payments made to a person who is, or was, a spouse of the maintenance payer are exempt from income tax. In determining liability to tax on foreign sourced income received by a non-resident taxpayer it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. Schedule 3 to the Agreements Act contains the double tax agreement between Australia and Canada (the Canadian Convention). Schedule 3A to the Agreements Act contains the protocol amending the Canadian Convention (the Canadian Protocol). The Canadian Convention and the Canadian Protocol operate to avoid the double taxation of income received by Australian and Canadian residents. Article 18(3) of the Canadian Convention provides that alimony or other maintenance payments arising in Australia and paid to a resident of Canada shall be taxable only in Australia. Therefore the maintenance payments received by the Canadian resident taxpayer may only be taxed by Australia. However, as the maintenance payments are exempt under paragraph 51-50(2)(a) of the ITAA 1997, the payments are not assessable under subsection 6-5(3) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 6-5(3) subsection 6-15(2) section 11-15 section 51-50 paragraph 51-50(2)(a)
Subject references: Maintenance payments Canada Double tax agreement Exempt income Foreign income