Private ruling: Assessable income and departing Australia superannuation payment
Date of advice: 14 December 2017
Published: May 2018
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2015

Ruling: Q1: Are the salary and wages received by you assessable income? | A1: No | Q2: Is Departing Australia Superannuation Payment (DASP) considered part of your remuneration? | A2: No | Q3: Is a DASP assessable in Australia? | A3: No | Q4: Is a DASP subject to final withholding tax in Australia? | A4: Yes

Relevant facts and circumstances: You are a Country A citizen and have been working in Australia on a temporary Visa. You are a resident of Country A for taxation purposes. You were employed by an Australian Employer (the Employer) on a fixed-term contract. You took unpaid extended leave from the Employer due to family issue and departed Australia for Country A. You returned to Australia. The Employer renewed your contract for 3 months. You departed from Australia after your employment contract ended and received your superannuation as a Departing Australia Superannuation Payment (DASP).

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(3) | Income Tax Assessment Act 1997 Section 301-170 | Income Tax Assessment Act 1997 Section 301-175 | International Tax Agreements Act 1953

Reasons for decision: Summary: Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a non-resident taxpayer includes ordinary income derived directly or indirectly from Australian sources during the income year. Salary and wages are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997. In determining liability to Australian tax, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (Agreements Act). Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and ITAA 1997 so that those Acts are read as one. Schedule 35 to the Agreements Act contains the double tax agreement between Australia and Country A (the Agreement). The Agreement operates to avoid the double taxation of income received by Australian and Country A residents. Article X of the Agreement provides that where a professor or teacher who is a resident of Country A visits Australia for a period not exceeding two years for the purpose of teaching or carrying out advanced study or research at a university, college, school or other educational institution, any remuneration that person receives for such teaching, advanced study or research shall be exempt from tax in Australia to the extent to which such remuneration is, or upon the application of this Article will be, subject to tax in Country A. Article X of the Agreement provides that the Article shall not apply to remuneration which a professor or teacher receives for conducting research if the research is undertaken primarily for the private benefit of a specific person or persons. In your case, you are a resident of Country A, you were employed by the Employer as a visiting professor; you took unpaid extended leave from the Employer and left Australia; your Employer renewed your contract. It is accepted that your visiting of Australia was for a period of less than two years for the purpose of carrying out employment as a visiting professor at an Australian university. Under Article X of the Agreement, the salary and wages received by you from employment is exempt from tax in Australia. Accordingly, the salary and wages received by you are not assessable under subsection 6-5(3) of the ITAA 1997. | Detailed Reasoning - Question 2, 3 and 4: Remuneration is received for the provision of work or services and generally does not included superannuation which is the accumulation of funds to provide an income in retirement. DASP is not remuneration for work or services provided as it is a payment of a superannuation lump sum. Article Y of the Agreement deals with pension and annuities under Country A and Australian law and is not applicable to a DASP entitlement. Article Z of the Agreement deals with the income not expressly mentioned in the foregoing articles of the Agreement. A DASP entitlement will be taxed under Article Z. Article Z of the Agreement provides that any such income derived by a resident of Country A from sources in Australia may also be taxed in Australia. Under section 301-170 of the ITAA 1997, a superannuation lump sum is a DASP if it: a) is paid to a person who has departed Australia; and b) is paid: i. in accordance with regulations under the Superannuation Industry (Supervision) Act 1993 or the Retirement Savings Accounts Act 1997 that are specified in regulations made for the purposes of this definition; or ii. in accordance with section 67A of the Small Superannuation Accounts Act 1995 ; or iii. by an exempt public sector superannuation scheme (within the meaning of section 10 of the Superannuation Industry (Supervision) Act 1993 ) and is made in accordance with rules of the fund that are substantially similar to the regulations specified as mentioned in subparagraph (i). Under subsection 301-175(1) of the ITAA 1997, if the Taxpayer receives a superannuation benefit that is a DASP, the benefit is not assessable income and is not exempt income. Although DASP’s are not subject to Australian income tax, they are subject to a final withholding tax under subsection 301-175(2) of the ITAA 1997 and by the Superannuation (Departing Australia Superannuation Payments Tax) Act 2007 . In your case, the information you have supplied provides confirmation that you were in receipt of a DASP. As the payment is a DASP it is not subject to Australian income tax under subsection 301-175(1) of the ITAA 1997, however the payment is subject to a final withholding tax under subsection 301-175(2) of the ITAA 1997 and under Superannuation (Departing Australia Superannuation Payments Tax) Act 2007. The withholding tax rates that are applicable on DASP’s (for non-Working Holiday Makers) from the 1 July 2017 are as follows: ● On tax free component - Nil ● On the element taxed in the fund - 35% ● On the element untaxed in the fund - 45%