ATO Interpretative Decision

ATO ID 2001/262 (Withdrawn)

Income Tax

• This ATO ID has been withdrawn because the ATO is reviewing the position stated in the ATO ID.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Whether the Malaysian Civil Service Pension received by the taxpayer, an Australian resident, is assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Decision

The Malaysian Civil Service Pension will be included in the assessable income of the taxpayer under section 6-5 (ITAA 1997).

Facts

The taxpayer, an Australian resident, is a surviving spouse of the original recipient of the Malaysian Civil Service Pension. Upon the death of the spouse, the taxpayer becomes entitled to and is paid the pension. The taxpayer's entitlement to the pension comes from the previous employment of the deceased spouse with the Malaysian Government. The services rendered by the employee were not in connection with a trade or business carried on by the Government of Malaysia. The pension in question is of the kind referred to in Article 18 of the Double Tax Agreement between Australia and Malaysia (Malaysian Agreement), as contained in Schedule 16 of the International Tax Agreements Act 1953 (the 'Agreements Act').

Reasons for Decision

Subsection 6-5(2) (ITAA 1997) provides that ordinary income derived directly or indirectly from all sources by an Australian resident is included in that Australian resident's assessable income.

The nature of the pension is such that it would be ordinary income that is assessable under section 6-5 (ITAA 1936). It is a regular, periodical receipt in the nature of income. Accordingly, the pension is fully assessable unless covered by a specific exempting provision. For instance, the taxation of a pension paid by another country may depend on the terms of the relevant double taxation agreement between Australia and the paying country.

The Malaysian Civil Service Pension is ordinary income assessable in the hands of the resident taxpayer unless it is exempt from Australian tax under the Malaysian Agreement. The relevant article in the Malaysian Agreement is Article 18 as the pension relates to government service. Paragraph 18(2) provides that the Contracting State paying the pension has the right to tax the pension if it so desires, but the Article does not limit or restrict the taxing power of the other Contracting State (Australia): Chong v. FC of T (2000) 44 ATR 295; 2000 ATC 4315 (Chong's case) and Taxation Ruling IT 2575. In Chong's case it was decided that on the proper construction of paragraph 18(2), a pension paid by Malaysia may be taxed in Australia.

In this case, the Malaysian Civil Service Pension received by the taxpayer is ordinary income and is not exempt from Australian tax under the Malaysian Agreement. The pension is fully assessable under section 6-5 (ITAA 1997).

Year of income:  30 June 2000

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

Case References:
Chong v. FC of T
   (2000) 44 ATR 295
   2000 ATC 4315

Related Public Rulings (including Determinations)
IT 2575

Keywords
Income
Foreign pension income

Business Line:  Small Business/Individual Taxpayers

Date of publication:  4 September 2001

ISSN: 1445-2782