ATO Interpretative Decision
ATO ID 2002/186 (Withdrawn)
Income Tax
Assessability of an Australian sourced pension paid to a resident of the United StatesFOI status: may be released
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This ATO ID contains a view in respect of section 27H of the Income Tax Assessment Act 1936 (ITAA 1936). Section 27H of the ITAA 1936 has been amended for the 2007-08 income year and later income years. This ATO ID is withdrawn as it does not reflect the amendments made to section 27H of the ITAA 1936. This ATO ID continues to be a precedential view in respect of decisions for income years up to, and including, the 2006-07 income year.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the taxpayer, a resident of the United States of America (USA), assessable on their Australian sourced pension under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The taxpayer, a resident of the USA, is not assessable on their Australian sourced pension under section 6-5 of the ITAA 1997.
Facts
The taxpayer is a resident of the USA and is a non resident for Australian tax purposes.
The taxpayer had been a partner in an Australian partnership. The taxpayer has retired and under the provisions of the partnership agreement they are paid a monthly pension from the partnership.
The pension is paid in consideration of services rendered by the taxpayer before their retirement.
The taxpayer pays income tax in the USA on this pension.
Reasons for Decision
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 a 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).
Schedule 2 of the Agreements Act contains the double tax agreement between the Australia and the USA (the USA Convention). The USA Convention operates to avoid the double taxation of income received by Australian and USA residents.
Article 18 of the USA Convention deals with pensions and annuities. Paragraph (1) of Article 18 provides that subject to the provisions of Article 19 (Government Remuneration), pensions and other similar remuneration paid in consideration of past employment to an individual who is a resident of the USA shall be taxable only in the USA.
Paragraph (4) of Article 18 of the USA Convention defines the term 'pensions and other similar remuneration' to include periodic payments made by reason of retirement or death, in consideration for services rendered.
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).
The pension paid by the Australian partnership is a periodic payment in consideration for services previously rendered and is therefore a 'pension or other similar remuneration' for the purposes of the USA Convention. As the taxpayer is a resident of the USA, the pension they receive is subject to tax only in the USA and therefore does not form part of their assessable income under section 6-5 of the ITAA 1997.
Date of decision: 13 September 2001Year of income: Year ended 30 June 1997 Year ended 30 June 1998 Year ended 30 June 1999 Year ended 30 June 2001 Year ended 30 June 2000
Legislative References:
Income Tax Assessment Act 1997
section 6-5
subsection 6-5(3)
subsection 6-10(5)
section 10-5
section 27H International Tax Agreements Act 1953
section 4
Schedule 2, Article 18
Schedule 2, Article 18(1)
Schedule 2, Article 18(4)
Keywords
Double tax agreements
Foreign pension income
Non resident individuals
Superannuation pension income
ISSN: 1445-2782
| Date: | Version: | |
| 13 September 2001 | Original statement | |
| You are here | 9 November 2007 | Archived |