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Edited version of your private ruling
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Ruling
Subject: assessability of a foreign pension
Question and answer:
Is your foreign pension assessable in Australia?
No.
This ruling applies for the following period:
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
You are an Australian resident for tax purposes.
You are in receipt of a government pension from a foreign country.
The pension is not taxable in the foreign country.
Your arguments and references
Attached to your application is a letter from the pension fund stating that your pension is not taxable in the foreign country.
Relevant legislation provisions:
Income Tax Assessment Act 1997 Subsection 6-5(2)
International Tax Agreements Act 1953 Articles 4 and 5
Reasons for decision
Assessable income
Under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997), the assessable income of a resident of Australia for tax purposes includes the income you derived directly or indirectly from all sources whether in or out of Australia during the year of income. As you are an Australian resident for tax purposes, income derived from the foreign country is assessable in Australia under subsection 6-5(2) of the ITAA 1997.
Double tax agreement
In determining liability to tax on foreign sourced income received by a resident taxpayer, 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 Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that those Acts are read as one. In the event of inconsistent provisions, the Agreements Act effectively overrides the ITAA 1936 and the ITAA 1997 (except in some limited situations).
The double tax agreement between Australia and the foreign country (the Agreement) operates to avoid the double taxation of income received by Australian residents and residents of the foreign country.
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 Agreement is listed in section 5 of the Agreements Act.
The Agreement
An Article - Pensions - of the Agreement states:
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 superannuation or portable veteran's pension or equivalent portable payments arising in the foreign country) 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 an Australian resident for tax purposes and you are receiving a pension from the government pension fund of the foreign country. Your pension is exempt from tax in the foreign country.
Another Article of the Agreement covers the date that the treaty (or Convention) enters into force:
in the case of Australia:
(iii) in respect of other Australian tax, in relation to income, profits or gains of any year of income beginning on or after 1 July next following the date on which the Convention enters into force.
This means that as the Agreement was renegotiated, the provisions of an Article as detailed above came into force in Australia on 1 July.
Conclusion
As you are a resident of Australia and receive a tax exempt pension from the foreign country, that pension is not assessable as income in Australia from 1 July.
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