ATO Interpretative Decision
ATO ID 2010/119
Income Tax
Assessability of Swedish pensions derived by an Australian residentFOI 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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Are the Swedish Government service pension and social security pension derived by an Australian resident taxpayer assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The Swedish Government service pension and the social security pension derived by an Australian resident taxpayer are assessable income under subsection 6-5(2) of the ITAA 1997.
Facts
The taxpayer is an Australian resident for income tax purposes.
The taxpayer is a citizen of Sweden.
The taxpayer receives a pension paid by the Swedish Government in respect of services rendered to that government.
The pension received by the taxpayer is not the type of pension that falls within the definition of section 27H of the Income Tax Assessment Act 1936 (ITAA 1936).
The taxpayer also receives a Swedish social security pension.
The taxpayer pays Swedish tax on both pensions.
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.
In the present case, the Swedish Government service pension and the Swedish social security pension 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 received by an Australian resident, it is necessary to consider not only the income tax laws, but also any applicable tax treaty contained in the International Taxation Agreements Act 1953 (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 17 of the Agreements Act contains the tax treaty between Australia and Sweden (the Swedish Agreement). This Agreement operates to avoid the double taxation of income received by Australian and Swedish residents.
The relevant article in the Swedish Agreement is Article 18 which deals with Pensions and Annuities. Article 18(1) provides that, subject to Article 18(3), any pension paid to a resident of Australia shall be taxable only in Australia. Article 18(3) provides that pensions paid by Sweden to any individual in respect of services rendered to Sweden and pensions paid under the social security scheme of Sweden and where the individual is a Swedish citizen may be taxed in Sweden.
There is nothing under Article 18(3) or any other provision of the Swedish Agreement that precludes Australia from also taxing the pensions, in accordance with the domestic law, where it is derived by an Australian resident taxpayer. The absence of the word 'only' after 'may be taxed' in Article 18(3) is significant and can be contrasted with Article 18(1) which includes the word 'only'.
As the taxpayer is an Australian resident for taxation purposes, the Swedish Government service pension and Swedish social security pension derived by the taxpayer from Sweden will be assessable income under subsection 6-5(2) of the ITAA 1997.
Article 24(1) operates to require the Swedish tax paid in respect of income derived by a person who is a resident of Australia to be allowed as a credit against Australian tax payable in respect of that income. As Swedish tax has been paid by the taxpayer in respect of the pensions that will also be subject to tax by the taxpayer in Australia, the taxpayer will be entitled to a foreign income tax offset under Division 770 of the ITAA 1997.
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- from the Government of the Kingdom of Denmark under Article 18(3) of the tax treaty between Australia and Denmark contained in Schedule 18 to the Agreements Act, and
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- from the Government of Finland under Article 17(3) of the tax treaty between Australia and Finland contained in Schedule 25 to the Agreements Act
Year of income: Year ended 30 June 2009 Year ended 30 June 2010
Legislative References:
Income Tax Assessment Act 1936
section 27H
section 6-5
subsection 6-5(2)
Division 770 International Tax Agreements Act 1953
section 4
Schedule 17
Schedule 17 Article 18
Schedule 17 Article 18(1)
Schedule 17 Article 18(3)
Schedule 17 Article 24(1)
Schedule 18
Schedule 18 Article 18(3)
Schedule 25
Schedule 25 Article 17(3)
Keywords
Denmark
Double tax agreements
Double tax relief
Finland
Foreign pension
Sweden
ISSN: 1445 - 2782