ATO Interpretative Decision
ATO ID 2010/154
Income Tax
Assessability of Netherlands pensions derived by an Australian residentFOI status: may be released
-
This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 Netherlands 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 Netherlands Government service pension and social security pension 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 receives a pension paid by the Netherlands Government in respect of services rendered to that government.
The pension paid is not in respect of services rendered in connection with any trade or business carried on by the Netherlands Government.
The type of 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 Netherlands social security pension.
The Netherlands Government service pension has been taxed in the Netherlands.
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 Netherlands Government service pension and the 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 10 to the Agreements Act contains the tax treaty and Protocol between Australia and the Kingdom of the Netherlands (the Netherlands Agreement). Schedule 10A to the Agreements Act contains the Second Protocol to the Netherlands Agreement (the Second Netherlands Protocol). The Netherlands Agreement and the Second Netherlands Protocol operate to avoid the double taxation of income received by Australian and Netherlands residents.
The relevant articles in the Netherlands Agreement are Article 18 which covers Pensions and Annuities and Article 19 which covers Government Service.
Article 18(1) provides that a pension (including a social security pension, but not including a pension to which Article 19 applies) payable to a resident of Australia shall be taxable only in Australia.
Article 19(1) provides that a pension paid for services rendered by the taxpayer to the Netherlands Government may be taxed by the Netherlands (see note below).
However, where such a pension is paid in respect of services rendered in connection with any trade or business carried on by the Netherlands Government, Article 19(2) provides for the pension to be taxed only by Australia under Article 18.
There is nothing under Article 19 or any other provision of the Netherlands Agreement that precludes Australia from also taxing the Government service pension, in accordance with its domestic law, where it is derived by an Australian resident. The absence of the word 'only' after 'may be taxed' in Article 19(1) 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 taxpayer will be assessed under subsection 6-5(2) of the ITAA 1997 in Australia on the Netherlands Government service pension and the social security pension income derived from the Netherlands.
Where the Netherlands exercises its right under Article 19(1) to tax the Government service pension, Article 23(1) and paragraph (5) of the Protocol operate to require the Netherlands tax paid to be allowed as a credit against Australian tax payable in respect of the Government service pension. As Netherlands tax has been paid by the taxpayer in respect of the Government service pension 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.
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 10
Schedule 10 Article 18
Schedule 10 Article 18(1)
Schedule 10 Article 19
Schedule 10 Article 19(1)
Schedule 10 Article 19(2)
Schedule 10 Article 23(1)
Schedule 10A
Other References:
The Netherlands State Secretary of Finance - Resolution IFZ96/863M, dated 28 June 1996
Keywords
Double tax agreements
Double tax relief
Foreign pension
Netherlands
ISSN: 1445 - 2782