Issue
Is an Eligible Termination Payment (ETP) paid to a non resident aged over 55 years of age that consists of a post-June 83 component, assessable under subsection 6-10(5) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The ETP paid to a non resident that consists of a post-June 83 component is assessable under subsection 6-10(5) of the ITAA 1997.
Facts
The taxpayer is a resident of the Czech Republic for income tax purposes.
The taxpayer is a non resident of Australia for income tax purposes.
The taxpayer is over 55 years of age.
The taxpayer worked in Australia and contributed to a complying superannuation fund during their employment.
The taxpayer received an ETP from the superannuation fund that consists wholly of a post-June 83 component.
The whole of the post-June 83 component comprises a taxed element.
Reasons for Decision
Subsection 6-10(5) of the ITAA 1997 provides that the assessable income of a non resident taxpayer includes statutory income derived from all Australian sources and other statutory income included by a provision on a basis other than having an Australian source.
Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list are ETPs dealt with under sections 27A to 27H of the Income Tax Assessment Act 1936 (ITAA 1936) which provide that various components of an ETP are included in assessable income.
Section 27AA of the ITAA 1936 provides that the post-June 83 component forms one component of an ETP. Section 27AB provides that a post-June 83 component of an ETP may consist of taxed and untaxed elements.
Section 27B of the ITAA 1936 includes the taxed element of a post-June 83 component in assessable income.
In determining liability to tax on Australian source 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.
Schedule 40 to the Agreements Act contains the double tax agreement between Australia and the Czech Republic (the Czech Agreement). The Czech Agreement operates to avoid the double taxation of income received by Australian and Czech Republic residents.
Article 15(1) of the Czech Agreement provides that salaries, wages and other similar remuneration derived by a resident of the Czech Republic in respect of an employment shall be taxable only in the Czech Republic unless the employment is exercised in Australia in which case such remuneration may be taxed in Australia.
An ETP is not considered to be 'salary, wages' or 'other similar remuneration' and therefore does not come within the scope of Article 15 of the Czech Agreement.
Article 18(1) of the Czech Agreement provides that pensions and annuities paid to a resident of the Czech Republic shall be taxable only in the Czech Republic.
An ETP is not a pension or annuity and is therefore not within the scope of Article 18 of the Czech Agreement.
Article 21(1) of the Czech Agreement provides that income not dealt with under foregoing Articles of the Czech Agreement received by a resident of the Czech Republic shall be taxable only in the Czech Republic.
However, Article 21(2) of the Czech Agreement provides that income received by a resident of the Czech Republic from sources in Australia may be taxed in Australia.
As the ETP received by the taxpayer is from an Australian source, the ETP may be taxed by Australia under Article 21(2) of the Czech Agreement.
As the ETP consists wholly of a taxed element of a post-June 83 component, the ETP received by the taxpayer will be assessable under subsection 6-10(5) of the ITAA 1997 as it is included in assessable income by section 27B of the ITAA 1936.
Note: As the taxpayer is over 55 years of age, section 159SA of the ITAA 1936 provides a rebate to the taxpayer to ensure that the maximum rate of tax payable on the ETP will be 0%.