Private ruling: Compulsory overseas insurance payments deducted from salary
Published: May 2012
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2010

Ruling: Questions and answers | Are you entitled to a deduction for contributions made to the Country X Insurance Scheme? | No. | Are you entitled to a tax offset for contributions made to the Country X Insurance Scheme? | No.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You are currently working in Country X. Your employer deducts tax and an amount for Country X Insurance Scheme contributions from your wages. The Insurance contributions are levied by Country X government on wages and goes towards providing a pension upon retirement. You believe that the amounts withheld as Country X Insurance Scheme contributions are a tax levied upon you as a consequence of your employment and earning of assessable income.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1. | Income Tax Assessment Act 1997 Division 770.

Reasons for decision: Detailed Reasoning - Deductibility of Country X Insurance Scheme contributions: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. In your case, you have had payments taken directly from your Country X salary as a contribution to the Country X Insurance Scheme, as required by Country X authorities. These amounts are not expenses you have incurred in the course of gaining or producing your assessable salary and wage income, but rather are incurred because it is a requirement of Country X authorities that you make the contributions as you earn salary and wage income over a certain threshold. The fact that the payments are compulsory does not make them deductible. Therefore, you are not entitled to a deduction for the amounts taken directly from your Country X salary as contributions to the Country X Insurance Scheme. | Detailed Reasoning - Tax offset for Country X Insurance Scheme contributions: According to Division 770 of the ITAA 1997, to count towards a foreign income tax offset, foreign income tax must be imposed under a law other than an Australian law and be: · a tax on income · a tax on profits or gains, whether of an income or capital nature, or · any other tax that is subject to an agreement covered by the International Tax Agreements Act 1953 . The payments taken directly from your Country X salary as a contribution to the Country X Insurance Scheme are not a tax on income, or a tax on profits or gains, or a tax that is subject to an agreement covered by the International Tax Agreements Act 1953 . Therefore, you are not entitled to a tax offset for the amounts taken directly from your Country X salary as contributions to the Country X Insurance Scheme.

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