Private ruling: Income - non-resident
Date of advice: 18 February 2016
Published: April 2016
Ruling period: Years ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Question and answer | Is the personal accident and sickness payment you will receive as a non-resident through a non-resident employer sponsored insurance facility assessable in Australia? | No.

Relevant facts and circumstances: You are a non-resident of Australia for tax purposes. You received a personal accident & sickness payment through a non-resident employer sponsored insurance facility.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5(3)

Reasons for decision: Summary: Generally speaking, the Australian approach to the taxation of non-residents is based on source. Thus, subsection 6-5(3) of the I ncome Tax Assessment Act 1997 advises that income of non-residents that is assessable in Australia includes ordinary income from an Australian source. The rules determining the source of income is a combination of both statutory rules and common law principles. The majority of income types are not covered by statutory source rules and for these, guidance is obtained from the common law. In Nathan v FC of T (1918) 25 CLR 183, it was stated that -source is a practical, hard matter of fact- and is what -a practical man would regard as a real source of income. The source of income must be determined with regards to the facts of each individual case. Generalised source rules will not apply in every instance. An example of the importance of the facts in each case is the difference in findings in French v FC of T (1957) 98 CLR 398 (French's case) and FC of T v Mitchum (1965) 113 CLR 401 (Mitchum's case). In the former case the source was held to be where the services were performed while in the latter, it was found that the place where the contract was made and where the remuneration was paid was more important. Both cases dealt with the source of services income. In French's case, the taxpayer was an Australian resident who was employed as an engineer by an Australian resident company. The taxpayer was sent to New Zealand for a two week period by the company to act as an inspecting engineer for its New Zealand business. The sum payable for that two week period was included in two of the taxpayer's normal monthly salary payments into his Australian bank account. Except for that period, the taxpayer worked for the company in Australia during the financial year. The Court held that the source of income earned under a normal contract of employment or contract for services is ordinarily the place where the employment or services are performed. Williams J. stated that the locality of the source of income derived from personal exertion in the capacity of employee or in relation to any services rendered must be where such personal exertion took place. In Mitchum's case, the taxpayer was an American actor who entered into a contract to a Swiss company outside of Australia. Under the contract the taxpayer agreed to provide his services as an artistic consultant and as an actor in two films. These services were to be provided at such studios and locations as the company directed. The contract also specified that he would be entitled to remuneration even if the company failed to utilize his services as long as he had fulfilled or was ready to fulfil all the terms of the agreement. In fulfilling the agreement, the taxpayer provided his services in the production of a film that was partly produced in Australia. The taxpayer spent eleven weeks in Australia during this production. The Court held that the source of the remuneration relating to the period in Australia was sourced outside of Australia. It was found that in this case more weight should be given to the place where the contract was made and where the remuneration was paid rather than to where the services were performed. As you are not an Australian resident for tax purposes and you were not employed by an Australian resident employer. The personal accident and sickness payment you received is from a source outside of Australia. Therefore, it will not be taxable in Australia.