ATO Interpretative Decision

ATO ID 2004/773

Income Tax

Assessability of an Australian state government service pension received by a Chinese resident who is an Australian citizen
FOI 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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade.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.

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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

Is the Australian state government service pension received by a Chinese resident taxpayer who is an Australian citizen, assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The Australian state government service pension received by a Chinese resident who is an Australian citizen is assessable under subsection 6-5(3) of the ITAA 1997.

Facts

The taxpayer is an Australian citizen.

The taxpayer is a non-resident of Australia for taxation purposes.

The taxpayer is a resident of China for taxation purposes.

The taxpayer receives a state government pension.

The taxpayer receives the pension in respect of previous services rendered to the state government in the capacity of an employee.

The pension is paid from a superannuation fund operated by the state government.

The taxpayer is not a citizen or national of China.

Reasons for Decision

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident includes all ordinary income derived from all Australian sources.

Pension payments are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

In determining liability to Australian tax on Australian sourced income received by a non-resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax 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 28 to the Agreements Act contains the double tax agreement between Australia and the People's Republic of China (the Chinese Agreement). The Chinese Agreement operates to avoid the double taxation of income received by Australian and Chinese residents.

Article 18 of the Chinese Agreement specifically deals with the taxation of pensions. This Article provides that, subject to Article 19 of the Chinese Agreement, China has the sole taxing rights over pensions paid to an individual who is a resident of China.

Article 19(2) of the Chinese Agreement provides that:

Any pension paid by, or out of funds created by, Australia or a political subdivision or local authority of Australia to an individual in respect of services rendered to Australia or subdivision or authority shall be taxable only in Australia.

However, any such pension shall be taxable only in China if the individual is a resident of, and a citizen or national of, China.

The taxpayer receives a pension in respect of services rendered to an Australian state government and is not a citizen or national of China. The pension is paid from a superannuation fund operated by an Australian state government. Accordingly Article 19(2) of the Chinese Agreement provides that the pension shall be taxable only in Australia.

Therefore, the Australian state government pension that the taxpayer receives will be assessable under subsection 6-5(3) of the ITAA 1997.

Date of decision: 15 September 2004

Year of income: Year ended 30 June 2001 Year ended 30 June 2002 Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005

Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(3)

International Tax Agreements Act 1953
   Schedule 28
   Schedule 28, Article 18
   Schedule 28, Article 19(2)

Keywords
China
Foreign income
Double tax agreements
Residence in Australia
Residence of individuals
Non resident individuals
Resident/residency
Superannuation pension income

Siebel/TDMS Reference Number: 4176407

Business Line: Public Groups and International

Date of publication: 24 September 2004

ISSN: 1445-2782

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