Assessability of Australian sourced worker's compensation pension paid to a resident of the United Kingdom

Is the taxpayer, a resident of the United Kingdom (UK), assessable on an Australian sourced workers compensation pension under subsection 6-5(3) or subsection 6-10(5) of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The taxpayer, a resident of the UK, is not assessable on an Australian sourced workers compensation pension under subsection 6-5(3) or subsection 6-10(5) of the ITAA 1997.

The taxpayer is a resident of the United Kingdom and a non-resident of Australia for income tax purposes.

The taxpayer is entitled to an Australian workers compensation pension and receives regular payments.

Subsection 6-5(3) of the ITAA 1997 provides that ordinary income derived by a non-resident directly or indirectly from Australian sources, as well as other ordinary income included by a provision on a basis other than having an Australian source, is assessable. Statutory income from all Australian sources, or included by a provision on a basis other than having an Australian source, is also included in an non-resident's assessable income under subsection 6-10(5) of the ITAA 1997.

Section 10-5 of the ITAA 1997 lists those provisions about assessable income. included in this list is section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) which provides that annuities and superannuation pensions are included in assessable income.

In determining liability to Australian tax on Australian sourced income received by a non-resident, 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 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

Schedule 1 to the Agreements Act contains the double tax agreement between Australia and the UK (the UK Agreement). The UK Agreement operates to avoid the double taxation of income received by Australian and UK residents.

Article 14 of the UK Agreement provides that an Australian sourced pension or annuity received by a resident of the UK will be exempt from tax in Australia.

The taxpayer is a resident of the UK and is in receipt of an Australian sourced workers compensation pension. Under Article 14 of the UK Agreement this income is exempt from tax in Australia and therefore it does not part of their assessable income under subsection 6-5(3) of the ITAA 1997 or section 6-10 of the ITAA 1997.