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Edited version of your private ruling
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Ruling
Subject: Assessability of foreign pension income
Question and answer:
Are the foreign pensions you receive assessable in Australia?
Yes.
This ruling applies for the following periods
Year ended 30 June 2013
The scheme commences on
1 July 2012
Relevant facts and circumstances
You are an Australian resident for taxation purposes.
You receive a state pension from country X.
You also receive a pension from a country X university pension scheme.
Australia has a double tax agreement with country X.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 6-10
Income Tax Assessment Act 1936 Section 27H
Income Tax Assessment Act 1936 Subsection 27H(2)
International Tax Agreements Act 1953 Section 4
Reasons for decision
Sections 6-5 and 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provide that the assessable income of an Australian resident includes their ordinary and statutory income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
Foreign pensions are included in assessable income under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936).
In determining liability to Australian tax on foreign sourced income, it is relevant 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 ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except for some limited provisions).
The Agreements Act contains the double tax agreement between Australia and country X (the agreement). The Agreement operates to avoid the double taxation of income derived by Australian and country X residents.
Article 17 of the Agreement provides that pensions (including government pensions) and annuities are taxable only by the country of which the recipient is a resident.
Accordingly, as you are a resident of Australia for tax purposes, the pensions you receive from country X are required to be included in your assessable income.
Further issues for you to consider
If you have paid tax in country X on either of your pensions, you should contact the country X tax authorities and request a refund of that tax. You should also inform the payer of your pension that you are an Australian resident and to discontinue deducting tax.
If you have made personal contributions to either of your pensions, you may be eligible to claim a deductible amount for the undeducted purchase price (UPP) of your pension. This will subsequently reduce the taxable amount of your pension.
Subsection 27H(2) of the ITAA 1936 operates to reduce the taxable amount of a pension received by the personal contributions made by a taxpayer for which no income tax deduction was allowed. This applies regardless of whether the fund paying the pension is located in Australia or overseas.
As such, the part of a taxpayer's pension which represents a return to them of their personal contributions is free from tax. This tax-free portion is called the deductible amount of the UPP.
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