Private ruling: Foreign allowance assessability
Date of advice: 10 August 2016
Published: September 2016
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is an allowance you received from your overseas employer assessable in Australia? | A1: Yes | Q2: If the foreign allowance is not assessable in Australia is it target foreign income for income test purposes? | A2: N/A.

Relevant facts and circumstances: You are a resident of Australia for income tax purposes. You relocated to the overseas country to commence non-government employment. You are not a resident of the overseas country for tax purposes. You received an allowance from your employer. You used the allowance to pay for food and rent. The allowance was non-taxable on your tax return in the overseas country. The amount received was not a reimbursement.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Section 15-2 | International Tax Agreements Act 1953 Section 4 | International Tax Agreements Act 1953 Section 5 | Fringe Benefits Tax Assessment Act 1986 Section 20

Reasons for decision: Summary: As the allowance is assessable foreign income this question is not applicable.

Sections 6-5 and 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provide that the assessable income of a resident taxpayer includes ordinary income and statutory income derived directly or indirectly from all sources. | Section 15-2 of the ITAA 1997 includes in a person's assessable income all allowances provided in respect of, or for or in relation directly or indirectly to, any employment. | Paragraph 12 of Taxation Ruling IT 2614 Income tax and fringe benefits tax: employee expenses incurred on relocation of employment (IT 2614) provides that an allowance is a payment of a definite sum of money, usually a predetermined amount to cover an estimated expense. It is an amount contributed towards the defraying of a particular type of expense an employee incurs, and is made regardless of whether the employee incurs more or less than the amount of the allowance. | Paragraph 15 of IT 2614 discusses amounts paid to an employee or future employee by way of reimbursement of expenses incurred by the employee in relocating to a new locality of employment as being an expense payment fringe benefit under section 20 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) . | In your case you incurred food and rental expenses upon relocating to the overseas country, where you commenced new employment. The allowance you received was a definite predetermined sum, the amount could be more or less than expenses incurred, it was paid to assist in defraying the cost of your expenses and is paid in connection with your employment. | As the amount paid is an allowance and not a reimbursement for relocation expenses incurred the amount does not constitute a fringe benefit under section 20 of the FBTAA. | As such, the payment it is considered an allowance for the purposes of section 15-2 of the ITAA 1997 and is assessable to you. | In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. | Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). | Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an agreement listed in section 5 has the force of law. The agreement with the overseas country is listed in section 5 of the Agreements Act. | The overseas country's agreement is located on the Austlii website (http://www.austlii.edu.au/) in the Australian Treaties Series database. The overseas country's agreement operates to avoid the double taxation of income received by residents of Australia and the overseas country. | Article x of the overseas country's agreement advises that salaries, wages and other similar remuneration derived by a resident of Australia shall be taxable only in Australia unless the employment is exercised in the overseas country. If the employment is exercised in the overseas country then the income may also be taxed in the overseas country. | In your case you are an Australian resident who received an allowance from employment exercised in the overseas country. The agreement with the overseas country does not exclude the amount from being taxable in Australia. Therefore as noted above, it is assessable to you.