ATO Interpretative Decision

ATO ID 2001/236

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does a pension received from the United Kingdom form part of the assessable income of an Australian resident taxpayer under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes, a United Kingdom pension or annuity forms part of an Australian resident's assessable income in the year in which it is received.

Facts

The taxpayer is a resident of Australia for taxation purposes.

The taxpayer receives:

•

a United Kingdom pension, and

•

a private pension (or annuity).

Reasons for Decision

Subsection 6-5(2) of the ITAA 1997 states that:

'If you are an Australian resident, your assessable income includes the *ordinary income you *derived directly or indirectly from all sources, whether in or out of Australia, during the income year.'

Subsection 6-5(4) explains when you have derived income:

'In working out whether you have derived an amount of *ordinary income, and (if so) when you derived it, you are taken to have received the amount as soon as it is applied or dealt with in any way on your behalf or as you direct.'

You are considered to have derived your pension income (both the United Kingdom pension and the private pension) when it was paid to you. Payment into an Australian or overseas account does not affect when you are taken to have derived the pension income.

The tax treatment of income from foreign sources by the source country should also be considered. Generally, where Australian residents are taxed on their foreign earnings at source a credit will be made available.

The International Tax Agreements Act 1953 (ITAA 1953) contains the Double Tax Agreements that Australia has entered into. These agreements help both countries avoid 'double-taxing' foreign source income.

Australia has a Double Tax Agreement with the United Kingdom. It can be found at Schedule 1 of the IAA 1953. Article 14 of the Agreement states:

(1)

Any pension or annuity derived from sources within one of the territories by an individual who is a resident of the other territory shall be exempt from tax in the first-mentioned territory.

(2)

the term "annuity" means a stated sum payable periodically at stated times during life or during a specified or ascertainable period of time under an obligation to make payments in return for adequate and full consideration in money or money's worth.

Thus, a pension or annuity from the United Kingdom that is received by an Australian resident is exempt from tax in the United Kingdom.

Legislative References:
Income Tax Assessment Act 1997
   section 6-5

Keywords
International Tax
Double Tax Agreements
Foreign income
Foreign pension income

Business Line:  Small Business/Individual Taxpayers

Date of publication:  21 August 2001

ISSN: 1445-2782