Private ruling: Residency and assessability of income protection payments
Date of advice: 30 June 2015
Published: June 2015
Ruling period: 1 July 20XX to 30 June 20YY.
Date scheme commenced: 1 July 20XX.

Ruling: Questions and answers: | 1. Have you been a resident of Australia for taxation purposes since Date A? | No. | 2. Are the salary continuance payments you have received since Date A assessable in Australia? | No.

Relevant facts and circumstances: You came to Australia from another country and lived here until Date A. You came to Australia under a temporary Visa. You worked in Australia. You became unable to work and have been receiving salary continuance payments. You left Australia on Date A to reside in another country, you have not returned to Australia since and have no intention of returning to Australia. You are a resident of the country you are residing in for taxation purposes.

Relevant legislative provisions: Income Tax Assessment Act 1997 - Section 6-5 | Income Tax Assessment Act 1997 Section 995-1(1). | Income Tax Assessment Act 1936 Section 6(1).

Reasons for decision: Detailed Reasoning - Assessability of salary continuance payments - general: Under Australia's tax law an individual who is a resident of Australia for taxation purposes is assessable on all their ordinary income, such as salary and wages from employment, from all sources in or out of Australia. Conversely, individual's who are non-residents are generally only assessable on amounts of ordinary income from Australian sources. It is widely accepted that regular salary continuance payments made to an individual under the disablement benefit provisions of a superannuation fund constitute amounts of ordinary income. You have been receiving monthly salary continuance payments through your employer's group superannuation scheme for several years. As these payments constitute ordinary income under Australia's tax law, it is necessary to consider your residency status and the source of the payment to determine the assessability of those payments in Australia. In addition, because you are a resident of another country for tax purposes the provisions of the double tax agreement (DTA) between Australia and that country must also be considered in determining whether or not your salary continuance payments are assessable in Australia. | Detailed Reasoning - Residency for taxation purposes: Section 995-1 of the Income tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936). The terms 'resident' and 'resident of Australia', in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. The tests are: • the resides test, • the domicile test, • the 183 day test, and • the superannuation test. If any one of these tests is met, an individual will be a resident of Australia for taxation purposes. Based on the facts you have provided, we can conclude that you have not satisfied any of the tests of residency since you left Australia on Date A. Accordingly, you have been a non-resident of Australia for taxation purposes since Date A. | Detailed Reasoning - Source of payments: Generally the 'source' of income from working is the location the employment is carried out. For example, the salary or wages of an individual working outside of Australia for an Australian company would generally be considered to be from a non-Australian source. This situation can be clearly contrasted with yours in that, although you are receiving payments from Australia that can be said to be a substitute for normal salary or wages, you are not performing any services in exchange for those payments. Accordingly, we consider the 'source' of your salary continuance payments to be Australia. | Detailed Reasoning - Application of the relevant DTA: As previously stated, as a non-resident of Australia for taxation purposes you would generally be assessable in Australia on any Australian sourced ordinary income, such as the salary continuance payments you are receiving. However, as you are also a resident of another country for tax purposes we must consider the application of the DTA between Australia and that country to your circumstances. The salary continuance payments you are receiving are considered to be a pension for the purposes of the relevant DTA. Article 18 of the relevant DTA deals with pensions and provides that pensions sourced in Australia and paid to residents of the other country are only taxable in the other country. | Detailed Reasoning - Conclusion.: You have not been a resident of Australia for tax purposes since September 20XX and the salary continuance payments you receive from your employer's group superannuation scheme have not been assessable in Australia since that date.