ATO Interpretative Decision

ATO ID 2002/313 (Withdrawn)

Income Tax

• This ATO ID is withdrawn effective from 1 July 2007 due to the legislation being repealed. This ATO ID is still relevant for any issues prior to this date.
  This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Does the taxpayer's United States of America (USA) Veteran's Disability pension form part of their assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. The taxpayer's USA Veteran's Disability pension does not form part of their assessable income under subsection 6-5(2) of the ITAA 1997 as the person is exempt from tax under section 53-10 of the ITAA 1997.

Facts

The taxpayer is a resident of Australia for taxation purposes.

The taxpayer receives a Veteran's Disability pension from the USA Department of Veterans Affairs as a result of being injured during service in the USA armed forces.

The pension compensates the taxpayer for the disability suffered as a result of their injuries.

The taxpayer is below aged pension age.

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 during the income year.

However subsection 6-15(2) of the ITAA 1997 provides that any income that is exempt income will not be included in assessable income.

Section 11-5 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 53-10 of the ITAA 1997 which deals with wounds and disability pensions.

Section 53-10 of the ITAA 1997 provides that wounds and disability pensions (Item 5) are wholly exempt provided that the payment is:

(a)

of a kind specified in sub-section 315(2) of the Income and Corporation Taxes Act 1988 of the United Kingdom; and

(b)

similar in nature to payments that are exempt under Divisions 52 or 53 of the ITAA 1997.

Subsection 315(2) of the Income and Corporation Taxes Act 1988 of the United Kingdom provides that income from wounds and disability pensions are exempt from income tax if they are:

(a)

wounds pensions granted to members of the naval, military or air forces of the Crown; or

(b)

disablement or disability pensions granted to members, other than commissioned officers, of the naval, military or air forces of the Crown on account of medical unfitness attributable to or aggravated by naval, military or air-force service.

Section 53-10 of the ITAA 1997 has equivalent wording to the repealed paragraph 23AD(3)(c) of the Income Tax Assessment Act 1936 (ITAA 1936). The application of paragraph 23AD(3)(c) of the ITAA 1936 is considered in Taxation Ruling IT 2586.

IT 2586 states that the Commissioner accepts that the exemption provided in paragraph 23AD(3)(c) of the ITAA 1936 applies to any such pensions payable by any government and the exemption applies irrespective of the age of the pensioner.

As the wording of paragraph 23AD(3)(c) of the ITAA 1936 is equivalent, in all relevant respects, to section 53-10 of the ITAA 1997 it is appropriate that the reasoning in IT 2586 should be applied to the interpretation of section 53-10 of the ITAA 1997.

The pension received by the taxpayer is a disability pension paid by reason of the taxpayer's disability arising out of wounds and injury suffered while a member of the USA armed forces.

The pension is of the same type as payments under subsection 315(2) of the Income and Corporation Taxes Act 1988. Therefore the taxpayer's pension meets the first requirement for exemption under section 53-10 of the ITAA 1997.

Section 52-65 of Division 52 of the ITAA 1997 provides that an invalidity service pension which is paid to a person who is under aged pension age will be exempt. The taxpayer's pension is similar in nature to this payment. Therefore the taxpayer's pension meets the second requirement for exemption under section 53-10 of the ITAA 1997.

The taxpayer's pension is therefore exempt under section 53-10 of the ITAA 1997 and therefore does not form part of their assessable income under subsection 6-5(2) of the ITAA 1997.

Year of income:  Year ended 30 June 2001

Legislative References:
Income Tax Assessment Act 1936
   paragraph 23AD(3)(c) (repealed)

Related Public Rulings (including Determinations)
IT 2586

Keywords
Exempt income
Foreign pension income
United States
Foreign government employees

Business Line:  Small Business/Individual Taxpayers

Date of publication:  28 March 2002

ISSN: 1445-2782