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Edited version of private ruling

Authorisation Number: 1011815225032

Ruling

Subject: Foreign disability pension

Question

Is the foreign disability pension derived by you, assessable to you in Australia?

Answer: Yes.

This ruling applies for the following period

Income year ended 30 June 2009

Income year ended 30 June 2010

Relevant facts

You are an Australian resident for income tax purposes.

You received a disability pension from the foreign government.

You worked for the foreign government.

You were classified as being unfit to perform various duties and you were discharged with a pension.

Your pension was transferred to Australia.

You have not attained pension age and there is no undeducted portion of the pension.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(2)

Income Tax Assessment Act 1997 Subdivision 52-A

International Tax Agreements Act 1953 Schedule X

International Tax Agreements Act 1953 Schedule X

International Tax Agreements Act 1953 Schedule X Article 18

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (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.

Pensions are generally assessable as 'ordinary' income. Therefore, the disability pension is assessable unless it is made exempt from tax by a provision of the Income Tax Assessment Act 1936 (ITAA 1936) or ITAA 1997.

Subdivision 52-A of the ITAA 1997 exempts from income tax, disability support pensions paid to person under pension age under the Social Security Act 1986.

Your pension was not paid under the Australian social security Act, therefore it is not exempt under subdivision 52-A of the ITAA 1997.

There is no provision in the ITAA 1936 or ITAA 1997 that exempts a disability support pension paid by the foreign government.

In determining liability to Australian tax on foreign source income 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).

Schedule X to the Agreements Act contains the double tax agreement between Australia and foreign country (the foreign country Convention). The foreign country Convention operates to avoid the double taxation of income received by Australian and foreign country residents.

Article 18 of the foreign country Convention provides that a pension (including government pension) paid to an Australian resident from the foreign country shall be taxable only in Australia.

Accordingly your foreign disability pension is assessable in Australia under subsection 6-5(2) of the ITAA 1997.

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