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Edited version of your private ruling
Authorisation Number: 1012071510682
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Ruling
Subject: Foreign resident - Pension
Question 1
As a resident of Country X, is the pension that you receive from Australia assessable in Australia?
Answer
Yes.
Question 2
Is the Australian tax, payable on your Australian pension, limited to a maximum rate of 15 percent?
Answer
Yes.
This ruling applies for the following periods:
Year ended 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You are a foreign resident receiving a pension for your previous employment in Australia.
You have been receiving this pension for several years.
Your pension has been getting taxed in Australia at the foreign resident rate of tax.
Your pension is also getting taxed in Country X.
There is a tax treaty between Australia and Country X.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(3),
Income Tax Assessment Act 1997 Subsection 6-10(5),
Income Tax Assessment Act 1997 Section 10-5,
Income Tax Assessment Act 1936 Section 27H,
International Tax Agreements Act 1953 Section 4 and
International Tax Agreements Act 1953 Section 5.
Reasons for decision
Summary
The Australian pension that you receive will be taxed in Australia; however due to the tax treaty between Australia and Country X the rate of tax on your pension will be limited to a maximum rate of 15 percent.
Detailed reasoning
Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident includes ordinary income derived directly or indirectly from Australian sources, as well as ordinary income included by a provision on a basis other than having an Australian source.
Statutory income from all Australian sources is also included in a foreign resident's assessable income under subsection 6-10(5) of the ITAA 1997.
Section 10-5 of the ITAA 1997 provides a list of provisions about assessable income. Included in this list is section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) which provides that annuities and superannuation pensions are included in assessable income.
In determining the liability to Australian tax on Australian sourced income received by a foreign resident, it is necessary to consider not only the Australian tax laws but also any applicable tax treaty.
Tax treaties are given the force of law domestically by the International Tax Agreements Act 1953 (the Agreements Act).
The Agreements Act states that where there are inconsistencies with an Act imposing Australian tax, the Agreements Act will prevail (except in relation to tax avoidance schemes).
Article 18 of the tax treaty between Australia and Country X provides that an Australian pension received by a resident of Country X is subject to tax in Country X. However, the Australian pension is also subject to tax in Australia but the rate of tax is not to exceed the lesser of:
15 percent of the pension or annuity received in the year; and
The tax that would be payable in respect of the pension or annuity received in the year if the recipient were a resident of Australia.
Subparagraph (2)(a) of Article 23 of the tax treaty deals with the relief of double taxation and provides that, subject to the provisions of the law of Country X, a credit for any tax paid in Australia will be allowed against tax payable in Country X on income from Australian sources.
In your case, the pension that you receive from Australia has to be included in your assessable income under section 6-5 of the ITAA 1997. However, the rate of tax on your pension will be limited to the lesser of 15 percent or the tax payable had you been a resident of Australia.
It should also be note that, subject to the provisions of the law of Country X, a credit for the tax paid on your pension in Australian will be allowed against tax payable on your pension in Country X.
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