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Edited version of private ruling
Authorisation Number: 1011576626971
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Subject: Undeducted Purchase Price (UPP) of your foreign pension
Question
Are you entitled to an annual and part year deductible amount in respect of the undeducted purchase price (UPP) of your foreign pension?
Ruling
No
The scheme commences on:
On or before 1 July 1983
Relevant facts
You receive a pension from a complying superannuation fund established and managed outside Australia.
The international tax agreement between Australia and country X, the country in which the retirement fund is established and managed provides that the pension is taxable in Australia.
The pension is included in your assessable income.
The pension is payable for life.
The pension reverted to you on the death of your spouse.
The original pension commenced prior to 1 July 1983
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 26AA.
Income Tax Assessment Act 1936 Section 26AA(2)
Explanation: (This does not form part of the notice of private ruling)
Pensions which commenced before 1 July 1983 is covered by former section 26AA of the Income Tax Assessment Act 1936 (ITAA 1936). That section allows the UPP of an annuity to be excluded from the assessable income of the taxpayer. A pension is an annuity for the purposes of the section.
Under former subsection 26AA(2)(a) of the ITAA 1936 for an annuity payable until the death of the taxpayer, or for a term that will not end before his death, the annual amount of the UPP to be excluded from the assessable income of the taxpayer is calculated by the formula:
UPP/Life expectancy of the taxpayer at the commencement of the pension
The UPP means the amount the recipient of the pension or annuity has outlaid to purchase the pension or annuity, for which no tax deduction or rebate was allowed or allowable.
To be entitled to a deduction under this section, the recipient of the pension needs to have made the contributions themselves.
In Taxation Determination TD 93/227 the Commissioner states that a person receiving an annuity (or superannuation pension) resulting from another person's death is not entitled to a deduction for the UPP of the annuity where the annuity became payable before 1 July 1983.
Persons receiving this type of annuity are not entitled to a deduction as they have not contributed to the purchase price of the original annuity.
In summary, as the original pension commenced prior to 1 July 1983 and the pension reverted to you on the death of your spouse and you have not made contributions towards the pension, you are not entitled to a UPP deduction.
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