Private ruling: Double tax agreement - compensation
Date of advice: 14 November 2025
Published: 5 January 2026
Ruling period: 30 June 20XX | 30June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the Compulsory Third Party (CTP) payments received by the individuals assessable in Australia? | A1: No. The CTP payments are not assessable in Australia under the relevant Article in the respective tax treaties. They are taxable in the country in which they tiebreak as tax residents to and should be declared in the individuals' tax return in that country for the applicable period(s).

Relevant facts and circumstances: X and Y travelled to Australia in September 20xx. Arrived on tourist visa and never returned since then. Country B citizens, residing in Country C. Involved in serious car accident in Australia. Admitted to ICU and hospitalised for surgeries and care. Went back to Country B for long recovery. Under a XX insurance policy, they were entitled to CTP payment from Z. Initially claim refused as citizens of Country B. Legal process with lawyer for X years resulted in successful claim. X entitled to received retroactive payments for X months. Y received payments for X years from Z - paid weekly. Couple relocated to Country C in XXX 20XX. Tax agent states both file and pay taxes in Country C and both remain tax residents in Country B. Z agreed to pay CTP to compensate for total or partial loss of earnings due to the accident. The 'payslip' for X states: the gross amount of $x, tax $x, net earnings $x. It was 'credited to the above account(s) in XXX 20xx' and paid by cheque. The 'payslips' for Y state: the gross amount of $x, tax $x, net earnings $x. It was 'credited to the above account(s) in XXX 20xx' and paid by cheque. the gross amount of $x, tax $x, net earnings $x. It was 'credited to the above account(s) in XXX 20xx' and paid by cheque. The CTP payments were made by Insurance Australia Limited trading as Z. Z has made several payments but applied XX% withholding on each payment. Couple have not received PAYGW statements to confirm if the tax withheld has been paid to the ATO. The agent states the income lost was referred to pre-accident weekly earnings derived in Country B .


Reasons for decision: Summary: Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident includes ordinary income derived directly or indirectly from Australian sources. The loss of earnings payments are ordinary income for the purpose of subsection 6-5(3) of the ITAA 1997. The CTP compensation payments have an Australian source. Paragraph 8 of Taxation Ruling 98/1 Income tax: determination of income; receipts versus earnings explains when an amount is derived. It states: The 'receipts' method is sometimes called the 'cash received' basis or the 'cash' basis. Under the receipts method, income is derived when it is received, either actually or constructively, under subsection 6-5(4) of the ITAA 1997. The effect of that subsection is that income is taken to have been derived by a person although it is not actually paid over but is dealt with on his/her behalf or as he/she directs. Therefore, the amounts were derived when they were received on the date(s) they were dealt with. In the case of the individuals, Z agreed to pay Compulsory Third Party (CTP) to compensate for total or partial loss of earnings due to the accident. Based on the payslips supplied by the tax agent it appears lump sum payments made were referrable to weekly earnings. The CTP payment made to X was derived, when received in XXX 20xx. The payments made to Y were derived, when received in XXX 20xx and XXX 20xx. Neither individual has a tax file number (TFN). The withholding rate is correct. Where a payee has not provided a TFN declaration, a withholding rate of XX% applies. The tax agent states the individuals file and pay taxes in the Country C, and they also remain tax residents of Country B. Based on the information supplied it appears the applicable tax treaty would be between Australia and Country C. This is because the payments were derived and received after the couple relocated to Country C. However, the tax agent states the individuals also remain tax residents of Country B. The ATO cannot make a determination as to which country the individuals tax residency would tiebreak to. Country C and Country B, as the competent tax authorities need to decide this. | Detailed Reasoning - Tax Treaties: We have provided our view on the taxation rights of the payments made by Z and the Article in the tax treaties between Australia and both Country C and Country B. In determining a liability to Australian tax in respect of Australian sourced income received by a foreign resident, 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). The Agreements Act contains both Country C and Country B Conventions. They apply to persons who are residents of one or both of the Contracting States and work to eliminate double taxation. | Detailed Reasoning - Agreement between Australia and Country C for the Avoidance of Double Taxation X and Protocol [XXXX] ATS XX (Country C Tax Treaty).: Article X provides that pensions, including pensions provided under the provisions of a public social security system, but not including pensions to which Article X applies, paid to a resident of one of the States, and annuities so paid, shall be taxable only in that State. Therefore, pensions paid from Australia to a resident of Country C shall be taxable only in the Country C. Article 3(3) provides that any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the laws of that State relating to the taxes to which this Agreement applies. The term 'pension' is not defined in Country C Tax Treaty or in Australia's domestic taxation law. Taxation Determination TD 93/151 Income tax: are periodic workers' compensation payments made by Comcare, 'pensions' for purposes of the pensions articles in Australia's double taxation agreements (DTAs)? discusses the meaning of a 'pension' for tax treaty purposes in the context of workers compensation payments. Paragraph 1 of TD 93/151 states that a 'pension' is defined in The Macquarie Dictionary, as: '1. a fixed periodical payment made in consideration of past services, injury or loss sustained, merit, poverty etc. 2. an allowance or annuity.' The meaning of the term 'pension' was also considered by Hill J. in the Federal Court in Tubemakers of Australia Ltd v Federal Commissioner of Taxation [1993] FCA 224 (Tubemakers). His Honour concluded that the essential characteristic of a 'pension' is periodic payments. The loss of earnings payments made under section 44 or section 45 of the Transport Accident Act 1986 (Vic) have the essential characteristic of a 'pension' as per Hill J. in Tubemakers and fall within The Macquarie Dictionary definition of 'pension' as they are fixed periodic payments made in consideration of injury or loss sustained. Like the payment in Tubemakers, the individuals' CTP compensation payments are from a similar scheme in NSW. The payments compensated for total or partial loss of earnings due to the accident. Division 4.2 of the Motor Accident Injuries Act 2017 No 10 (NSW) (MAIA 2017) provides for Damages for economic loss and specifically 4.6 deals with 'Maximum for loss of earnings etc'. The amounts paid to the individuals were as lump sums representing arrears of unpaid periodic loss of earnings payments by Insurance Australia Limited trading as Z under the MAIA 2017 are also a 'pension' for the purposes of the Pension Article in Country C Tax Treaty. This is because the lump sum amount represents the aggregate of past loss of earnings payments that should have been made on a periodic basis over a particular period of time. Therefore, the Pension Article applies to give Country C, as the country of residence of the taxpayer, sole taxing rights over the compensation payment. | Detailed Reasoning - Convention between the Government of Australia and Country B for the Avoidance of Double Taxation X and Protocol [XXXX] ATS XX (Country B Tax Treaty): Article X provides subject to the provisions of paragraph X of Article X (Government Service), pensions and other similar periodic remuneration paid to a resident of a Contracting State shall be taxable only in that State. Therefore, pensions paid from Australia to a resident of Country B shall be taxable only in Country B. Article X regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State. The term 'pension' is not defined in Country B Tax Treaty or in Australia's domestic taxation law. Taxation Determination TD 93/151 Income tax: are periodic workers' compensation payments made by Comcare, 'pensions' for purposes of the pensions articles in Australia's double taxation agreements (DTAs)? discusses the meaning of a 'pension' for tax treaty purposes in the context of workers compensation payments. Paragraph 1 of TD 93/151 states that a 'pension' is defined in The Macquarie Dictionary, as: '1. a fixed periodical payment made in consideration of past services, injury or loss sustained, merit, poverty etc. 2. an allowance or annuity.' The meaning of the term 'pension' was also considered by Hill J. in the Federal Court in Tubemakers of Australia Ltd v Federal Commissioner of Taxation [1993] FCA 224 (Tubemakers). His Honour concluded that the essential characteristic of a 'pension' is periodic payments. The loss of earnings payments made under section 44 or section 45 of the Transport Accident Act 1986 (Vic) have the essential characteristic of a 'pension' as per Hill J. in Tubemakers and fall within The Macquarie Dictionary definition of 'pension' as they are fixed periodic payments made in consideration of injury or loss sustained. Like the payment in Tubemakers, the individuals CTP compensation payments are from a similar scheme in NSW. The payments compensated for total or partial loss of earnings due to the accident. Division 4.2 of the Motor Accident Injuries Act 2017 No 10 (NSW) (MAIA 2017) provides for Damages for economic loss and specifically 4.6 deals with 'Maximum for loss of earnings etc'. The amounts paid to the individuals were as lump sums, representing arrears of unpaid periodic loss of earnings payments by Insurance Australia Limited under the MAIA 2017 are also a 'pension' for the purposes of the Pension Article in Country B Tax Treaty. This is because the lump sum amount represents the aggregate of past loss of earnings payments that should have been made on a periodic basis over a particular period of time. Therefore, the Pension Article applies to give Country B, as the country of residence of the taxpayer, sole taxing rights over the compensation payment. | Detailed Reasoning - Other information: The OECD Model Tax Convention (MTC) on Income and on Capital 1, which provides a means of settling on a uniform basis the most common problems that arise in the field of international juridical double taxation. The MTC Commentary on Article 18 concerns the taxation of pensions. The 'Scope of the Article' explains the Article only applies, however, to payments that are in consideration of past employment, and it applies regardless of the tax treatment of the scheme under which the relevant payments are made; thus, a payment made under a pension plan that is not eligible for tax relief could nevertheless constitute a "pension or other similar remuneration" Paragraph 4 says whether or not such payments fall under the Article will be determined by the nature of the payments, having regard to the facts and circumstances in which they are made, as explained in the following two paragraphs. It also refers to paragraphs 2.3 to 2.16 of the Commentary on Article 15, which deal with the application of the Convention to a number of these payments. Paragraph 2.14 in Article 15 - Another type of payment that could be made on or after termination of an employment is a compensation payment for loss of future earnings following injury or disability suffered during the course of employment. The tax treaty treatment of such a payment would depend on the legal context in which it was made. For instance, payments under a social security system such as a worker's compensation fund could fall under Article 18, 19 or 21 (see paragraph 24 of the Commentary on Article 18). A payment that would constitute a pension payment would be covered by Article 18. Paragraph 5 states, while the word 'pension', under the ordinary meaning of the word, covers only periodic payments, the words 'other similar remuneration' are broad enough to cover non-periodic payments. For instance, a lump-sum payment in lieu of periodic pension payments that is made on or after cessation of employment may fall within the Article.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar. | Remittance and refund of Pay as you go withholding (PAYGW): If the amounts were withheld in error and no Australian tax return is required (because the income is non-assessable under the tax treaty), the Refund of over-withheld withholding application form (Nat XXXXX) is for non-residents. The application form is used to claim a refund if too much non-resident withholding tax has been applied even if the non-resident doesn't have a valid TFN. | They need to provide supporting evidence with your application. | • a copy of the ATO exemption letter or private ruling covering the periods when the non-resident withholding tax has been deducted | • a certificate of residency from your tax authority for the requested years. | For further information the tax agent can access the ATO website: Refund of over-withheld withholding: how to apply | Australian Taxation Office