ATO Interpretative Decision
ATO ID 2005/255
Income Tax
Assessability of pension income received by a dual resident of Australia and the UKFOI 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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 pension received from the United Kingdom (UK) by a dual resident taxpayer assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The pension received from the UK by a dual resident taxpayer is not assessable income under subsection 6-5(2) of the ITAA 1997 as it is taxable only in the UK under Article 17(1) of Schedule 1 to the International Tax Agreements Act 1953 (Agreements Act).
Facts
The taxpayer is a dual resident of Australia and the UK for income tax purposes.
The taxpayer has a permanent home in the UK and Australia and the taxpayer's family resides in the UK.
The taxpayer is a citizen of the UK.
The taxpayer receives government pension income from the UK while residing in Australia.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Pensions received by the taxpayer are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
In determining liability to Australian tax on foreign sourced income, 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 1997 so that those Acts are read as one.
Schedule 1 to the Agreements Act contains the Convention and Notes between Australia and the UK (the 2003 UK Convention). The 2003 UK Convention operates to avoid the double taxation of income received by Australian and UK residents.
Article 4(3) of the 2003 UK Convention provides the rules where an individual is a resident of Australia and the UK for income tax purposes (the 'tie breaker tests'). The tiebreaker tests ensure that the individual is only treated as a resident of one country for the purposes of applying the 2003 UK Convention.
Article 4(3)(a) of the 2003 UK Convention provides that where an individual is a resident of both countries:
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- the individual shall be deemed to be a resident only of the country in which a permanent home is available to that individual
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- if a permanent home is available in both countries, the individual shall be deemed to be a resident only of the country with which the individual's personal and economic relations are closer (centre of vital interests).
Though the taxpayer has a permanent home in both Australia and the UK, the taxpayer has closer personal relations with the UK as the taxpayer's family resides in the UK. Therefore the taxpayer will be deemed to be a resident of the UK under Article 4(3)(a) of the 2003 UK Convention. ATO Interpretative Decision 2011/53 contains details of how the centre of vital interests is determined.
Article 17(1) of the 2003 UK Convention provides that pensions (including government pensions) paid to a resident of the UK will be taxable only in the UK.
Accordingly, the pension received by the taxpayer from the UK, while residing in Australia, is not assessable income under subsection 6-5(2) of the ITAA 1997.
Date of decision: 21 July 2005Year of income: Year ended 30 June 2006
Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(2)
section 4
Schedule 1, Article 4(3)
Schedule 1, Article 4(3)(a)
Schedule 1, Article 17(1) Related ATO Interpretative Decisions
ATO ID 2011/53
Keywords
Double tax agreements
Exempt income
Foreign pension income
Non resident individuals
Prescribed dual resident
United Kingdom
ISSN: 1445-2782