ATO Interpretative Decision

ATO ID 2002/501 (Withdrawn)

Income Tax

• This ATO Interpretative Decision is withdrawn from the database because it contains a view in respect of a provision of the Income Tax Assessment Act 1936 that does not apply after the 2006-07 income year. Despite its withdrawal from the database, this ATO Interpretative Decision continues to be precedential view in respect of decision for income years up to, and including, the 2006-07 income year.
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Issue

Is an allocated pension paid by an Australian superannuation fund to a resident of a country with which Australia has a Double Tax Agreement (DTA) a 'pension' for the purposes of the Pensions and Annuities Article in Australia's DTAs (as incorporated into Australian law by the International Tax Agreements Act 1953)?

Decision

Yes.

Facts

The taxpayer is a non-resident of Australia and is a resident of a country which has a DTA with Australia. The taxpayer purchased an allocated pension from an Australian superannuation fund. The pension was purchased with the rolled-over amount of an ETP, and met the standards set down in subregulation 1.06(4) of the Superannuation Industry (Supervision) Regulations.

Reasons for Decision

In dealing with an allocated pension paid by an Australian superannuation fund to a resident of a treaty partner country, the relevant DTA must be considered as it will allocate the taxing rights over those classes of income which fall within the treaty. Each Australian DTA is given the force of law domestically under the International Tax Agreements Act 1953 (the 'Agreements Act') and is incorporated as a schedule to that Act. Subsection 4(1) of the Agreements Act stipulates that the DTAs are to be interpreted and read as one with the Income Tax Assessment Act 1936 (the ITAA 1936) and the Income Tax Assessment Act 1997 (the ITAA 1997). Subsection 4(2) of the Agreements Act provides that the terms of the DTAs prevail over those of the ITAA 1936 and the ITAA 1997 (except section 160AO and Part IVA of the ITAA 1936) in the case of any inconsistency.

For the Pensions and Annuities Article in Australia's DTAs to apply to an allocated pension, it is necessary for the allocated pension to fall within the treaty meaning of 'pension'. As 'pension' is an undefined term in our DTAs, generally the General Definitions Article will allow us to refer to the domestic law meaning of a term, but only if the context so permits.

The principal definition of 'pension' in Australian tax law is section 27A of ITAA 1936, which states that a ' "pension" means (a) a pension, within the meaning of the Superannuation Industry (Supervision) Act 1993 (the SIS Act); or (b) a pension, within the meaning of the Retirement Savings Accounts Act 1997 (the RSA Act)'. Section 27H includes pensions (so defined) in a taxpayer's assessable income.

Section 10 of the SIS Act states that a '"pension" (except in the expression "old-age pension") includes a benefit provided by a fund, if the benefit is taken, under the regulations, to be a pension for the purposes of this Act.' Subregulation 1.06(4) establishes the standards which an allocated pension must meet if it is to be taken to be a pension for the purposes of the SIS Act. Therefore, an allocated pension which meets the standards of subregulation 1.06(4) will be a pension within the meaning of section 27A of the ITAA 1936 and will be included in a taxpayer's assessable income. (Section 16 of the RSA Act defines pensions in similar terms to section 10 of the SIS Act. Also, 'allocated pension' is defined in section 995-1 of ITAA 1997.)

Section 27A of the ITAA 1936 (which incorporates section 10 of the SIS Act) is the most relevant statutory meaning for the purposes of the DTA and should apply unless there is any inconsistency with the terms of the DTA. However, an issue arises as to whether section 27A can be applied in its extended form to treaties which were negotiated prior to the passage of the SIS Act in 1993. Although the General Definitions Article is intended to allow an ambulatory meaning to be given to undefined terms in Australia's DTAs where possible (i.e., that the current law meaning should be preferred to the historical meaning at the time the DTA was concluded), treaty partners must be seen to be giving effect to DTAs in good faith and should not be seen to be attempting to alter the meaning of a treaty via changes to domestic statutory law.

Given that the statutory elements of an allocated pension are that:

•

it must be paid from a superannuation fund

•

the payments must be made at least annually

•

the total amount of the annual payments must fall within an approved range (ie minimum and maximum thresholds) based on statutory formulas; and

•

the payments can only be paid to the recipient, the recipient's spouse or the recipient's dependants,

it is considered that allocated pensions which meet this statutory definition broadly satisfy the international understanding of 'pension', which seems only to require that a pension be a periodic payment. The Australian common law meaning also appears to align with the international law meaning - see Tubemakers of Australia Ltd v. FC of T (1993) 25 ATR 183 at 190; 93 ATC 4207 at 4213, and Taxation Determination TD 93/151 at paragraph 1. Although some of the characteristics of allocated pensions are novel in comparison to more traditional pension payments, fundamental pension characteristics are nevertheless present.

Accordingly, subject to the context and terms of the particular DTA, an allocated pension paid by an Australian superannuation fund to a non-resident who resides in a treaty partner country is a 'pension' for the purposes of the Pensions and Annuities Article in Australia's DTAs.

Year of income:  

Legislative References:
International Tax Agreements Act 1953
   Section 4
   Schedule 1
   Schedule 1A
   Schedule 2
   Schedule 3
   Schedule 4
   Schedule 5
   Schedule 5A
   Schedule 6
   Schedule 9
   Schedule 10
   Schedule 10A
   Schedule 11
   Schedule 11A
   Schedule 12
   Schedule 13
   Schedule 13A
   Schedule 14
   Schedule 15
   Schedule 16
   Schedule 16A
   Schedule 17
   Schedule 18
   Schedule 20
   Schedule 21
   Schedule 22
   Schedule 23
   Schedule 24
   Schedule 25
   Schedule 25A
   Schedule 27
   Schedule 28
   Schedule 29
   Schedule 30
   Schedule 31
   Schedule 32
   Schedule 33
   Schedule 34
   Schedule 35
   Schedule 36
   Schedule 37
   Schedule 38
   Schedule 38A
   Schedule 39
   Schedule 40
   Schedule 41
   Schedule 42
   Schedule 43
   Schedule 44
   Schedule 45

Case References:
Tubemakers of Australia Ltd v. FC of T
   (1993) 25 ATR 183
   93 ATC 4207

Related Public Rulings (including Determinations)
TD 93/151

Related ATO Interpretative Decisions
ATO ID 2002/500

Keywords
Allocated pensions and annuities
Double tax agreements

Business Line:  LB&I

Date of publication:  30 April 2002

ISSN: 1445-2782