Private ruling: Assessable income
Date of advice: 12 January 2017
Published: June 2017
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the weekly compensation payment you received assessable in Australia? | A1: Yes

Relevant facts and circumstances: You are a resident of Australia for tax purposes. You and your spouse were involved in an accident. You were the sole survivor of this accident. You were provided weekly payments. You no longer receive the weekly payments.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | International Tax Agreements Act 1953 subsection 4(1) | Injury Prevention, Rehabilitation, and Compensation Amendment Act 2001 schedule 1 clause 66.

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) states that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Ordinary income is income according to ordinary concepts which is not specifically defined in the legislation. However, characteristics of ordinary income that have evolved from case law include receipts that are earned, expected, relied upon, and have an element of periodicity, recurrence or regularity. A compensation amount generally bears the character of that which it is designed to replace. If the compensation is paid to replace weekly income then it will be regarded as ordinary income. Australian and NZ tax treaty (the NZ Agreement) In determining liability to tax on foreign sourced income received by an Australian resident taxpayer it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act). Australia has a tax treaty with New Zealand (the New Zealand Agreement) which operates to avoid the double taxation of income received by Australian and New Zealand residents. In your case it is necessary to establish how your weekly compensations payments are categorised for the purposes of Australia's tax treaty. Taxation Determination TD 93/151 deals with how periodic workers compensation payments made by Comcare are characterised for the purposes of Australia's tax treaty. TD 93/151 considers that Comcare payments are fixed periodical payments and that they are pensions within the ordinary meaning of that term and therefore falls within the Pensions Articles for the purposes of Australia's tax treaty. While the payments you are receiving are not paid by Comcare, they are similar to Comcare payments in that they are fixed periodical payments made in consideration of injury or loss sustained. As such the payments you are receiving are considered to be a pension for the purposes of the New Zealand Agreement. Article 19 of the New Zealand Agreement provides that pensions (including government pensions) and annuities sourced in New Zealand and paid to a resident of Australia are taxable only in Australia. Consequently the weekly compensations payments made to you are a pension for the purposes of the New Zealand Agreement and are taxable in Australia. Therefore, the payments you receive are ordinary income and are assessable under subsection 6-5(2) of the ITAA 1997.