ATO ID 2003/477: Assessability of workers compensation payments made to a resident of India
Date of decision: 12 June 2003
Year of income: Year ended 30 June 2001 Year ended 30 June 2002 Year ending 30 June 2003
Business line: Public Groups and International

Issue
Are the workers' compensation payments received by the taxpayer, a resident of India, from an Australian entity assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
No. Even though the workers' compensation payments received by the taxpayer, a resident of India, from an Australian entity are assessable under subsection 6-5(3) of the ITAA 1997, Article 18(1) of Schedule 35 to the International Tax Agreements Act 1953 (the Agreements Act) applies and the workers compensation payments are not taxable in Australia.

Facts
The taxpayer is a resident of India for income tax purposes. The taxpayer was injured at work while employed in Australia. The taxpayer receives periodical workers compensation payments from an Australian resident entity.

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. The workers' compensation payments are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997. The taxpayer is a resident of India, a country with which Australia has entered into a double tax agreement. Therefore, the double tax agreement between Australia and the Republic of India contained in Schedule 35 to the Agreements Act (the Indian Agreement) must be considered in determining whether the workers' compensation received by the taxpayer is taxable in Australia. Section 11Z of the Agreements Act gives the Indian Agreement the force of law in Australia. Subsection 4(1) of the Agreements Act provides that the ITAA 1997 must be read as one with the Agreements Act. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions with some limited exceptions (subsection 4(2) of the Agreements Act). Article 18(1) of the Indian Agreement provides that pensions or annuities paid to a resident of India will be taxable only in India. The term 'pension' is not defined in the Indian Agreement. Taxation Determination TD 93/151 considers the application of pension articles in Australia's double tax agreements in the context of periodic compensation payments made by Comcare. 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. Workers' compensation payments received are fixed periodical payments made in consideration of an injury suffered by the taxpayer. Therefore, the workers' compensation payments received by the taxpayer from the Australian entity are within the meaning of a pension under Article 18(1) of the Indian Agreement. Consequently, as the taxpayer is a resident of India, Article 18(1) of the Indian Agreement applies and the workers' compensation payments are not assessable income under subsection 6-5(3) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 6-5(3)
Case references: Tubemakers of Australia Ltd v. FC of T (1993) 25 ATR 183 93 ATC 4207
Related public rulings and determinations: Taxation Determination TD 93/151
Other references: The Macquarie Dictionary 2001, rev. 3rd edn, The Macquarie Library Pty Ltd, NSW
Subject references: Double Tax Agreements India International tax Pension Workers compensation