ATO Interpretative Decision

ATO ID 2003/383 (Withdrawn)

Income Tax

• This ATO ID is withdrawn as it does not reflect the amendments made to section 27H of the Income Tax Assessment Act 1936 (ITAA 1936).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 contains a view in respect of 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.

Issue

Are the annuity payments received by a taxpayer, a resident of the Netherlands, from an Australian resident insurer assessable under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

No. Even though the annuity payments received by the taxpayer, a resident of the Netherlands, would be assessable under section 27H of the ITAA 1936, Article 18 of Schedule 10 to the International Tax Agreements Act 1953 (the Agreements Act) applies and the annuity payments are not taxable in Australia.

Facts

The taxpayer is a citizen and resident of the Netherlands for income tax purposes.

The taxpayer purchases an annuity from an Australian resident insurer.

The taxpayer receives annuity payments twice a year from the Australian resident insurer.

Reasons for Decision

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 all Australian sources during the income year and other ordinary income included by a provision on a basis other than having an Australian source.

Subsection 6-10(5) of the ITAA 1997 provides that a non resident taxpayer's assessable income includes statutory income 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 is section 27H of the ITAA 1936 which provides that annuities are included in the assessable income of the taxpayer (excluding, in the case of an annuity that has been purchased, the deductible amount in relation to the annuity for the year of income (as determined by the section)).

In determining liability to 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 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. In the event of inconsistent provisions, the Agreements Act overrides the ITAA 1936 and ITAA 1997 (except in some limited situations).

Schedule 10 to the Agreements Act contains the double tax agreement and the protocol between Australia and the Kingdom of the Netherlands (the Netherlands Agreement). The Netherlands Agreement operates to avoid the double taxation of income received by residents of Australia and the Netherlands.

Paragraph (1) of Article 18 of the Netherlands Agreement provides that annuities and pensions paid to a resident of the Netherlands shall be taxable only in the Netherlands.

Paragraph (2) of Article 18 of the Netherlands Agreement defines 'annuity' as a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time under an obligation to make the payments in return for adequate and full consideration in money or money's worth.

The payments received by the taxpayer from the Australian resident insurer come within the definition of an annuity under paragraph (2) of Article 18 of the Netherlands Agreement.

Consequently, as the taxpayer is a resident of the Netherlands, paragraph (1) of Article 18 of the Netherlands Agreement applies and the annuity payments are not taxable in Australia. The annuity income is therefore not assessable under section 27H of the ITAA 1936.

Year of income:  Year ending 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   section 27H

Keywords
Annuity income
Double tax agreements
Foreign pension
Netherlands

Business Line:  Public Groups and International

Date of publication:  23 May 2003

ISSN: 1445-2782