ATO Interpretative Decision
ATO ID 2003/409
Income Tax
Assessability of an annuity received by resident taxpayer from the United States of AmericaFOI status: may be released
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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 annuity income received by a resident taxpayer from the United States of America (US) assessable under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. The annuity income received by a resident taxpayer from the US is assessable under section 27H of the ITAA 1936.
Facts
The taxpayer is a resident of Australia for income tax purposes.
The taxpayer receives periodically at stated times, annuity payments from a US resident insurance company.
Reasons for Decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary derived directly or indirectly from all sources during the income year.
Subsection 6-10(4) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes statutory income from all sources, whether in or out of Australia.
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 annuity amounts 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 Australian tax on foreign sourced income received by a resident taxpayer, 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. In the event of inconsistent provisions, the Agreements Act overrides the ITAA 1936 and ITAA 1997 (except in some limited situations).
Schedule 2 to the Agreements Act contains the double tax convention between Australia and the United States of America (the US Convention). Schedule 2A of the Agreements Act contains the protocol amending the US Convention (the US Protocol). The US Convention and the US Protocol operate to avoid double taxation of income received by Australian and US residents.
Paragraph (3) of Article 18 of the US Convention provides that annuities paid to an individual who is a resident of Australia shall be taxable only in Australia.
Paragraph (5) of Article 18 of the US Convention defines 'annuities' as stated sums paid periodically at stated times during life, or during a specified or ascertainable number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered or to be rendered).
The annuity received by the taxpayer from the US resident insurance company comes within the definition of an 'annuity' under paragraph (5) of Article 18 of the US Convention.
As the taxpayer is a resident of Australia for income tax purposes, paragraph (3) of Article 18 of the US Convention applies and the annuity income received from the US will form part of the assessable income of the taxpayer under section 27H of the ITAA 1936.
Date of decision: 14 May 2003Year of income: Year ended 30 June 2001 Year ended 30 June 2002 Year ending 30 June 2003
Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(2)
subsection 6-10(4)
section 10-5
section 27H
subsection 27H(2)
subsection 27H(3) International Tax Agreements Act 1953
section 4
Schedule 2
Schedule 2A
Schedule 2, Article 18, paragraph (3)
Schedule 2, Article 18, paragraph (5)
Keywords
Annuity income
Double tax agreements
Foreign income
International tax
Treaties
United States of America
ISSN: 1445-2782