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Ruling

Subject: Assessability of foreign pension

Question and answer

Is your Country X pension income taxable in Australia?

No.

This ruling applies for the following period:

Year ended 30 June 2012.

The scheme commenced on:

1 July 2011.

Relevant facts and circumstances

You are a resident of Australia for tax purposes.

You are in receipt of a Country X pension.

If you were a resident of Country X for tax purposes, this pension would not be taxable in Country X.

Relevant legislative provisions:

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

International Tax Agreements Act 1953 Section 4.

International Tax Agreements Act 1953 Section 5.

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.

In your case, you are a resident of Australia for tax purposes and therefore you are assessed on your worldwide income.

However, in determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

As you are in receipt of a Country X pension, the Country X double tax agreement must be considered.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the Income Tax Assessment Act 1936 (ITAA 1936) and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country X Agreement is listed in section 5 of the Agreements Act.

The Country X agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country X agreement operates to avoid the double taxation of income received by residents of Australia and Country X.

The article of the agreement relating to pensions states:

1. Pensions (including government pensions) and other similar periodic remuneration paid to a resident of a Contracting State shall be taxable only in that State. However, such income arising in the other Contracting State (other than payments of portable Country X superannuation or portable veteran's pension or equivalent portable payments arising in Country X) shall not be taxed in the first-mentioned State to the extent that such income would not be subject to tax in the other State if the recipient were a resident of that other State.

In your case, you are a resident of Australia for tax purposes in receipt of a Country X Government Superannuation Fund Authority pension which would not be taxable in Country X if you were a resident of Country X.

Therefore, in accordance with the agreement, your pension is not taxable in Australia.

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