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Ruling
Subject: Foreign income - pensions/annuities
Question
Are you assessable on payments received from an overseas retirement benefits scheme paid in respect of your children?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You are a citizen of an overseas country.
You arrived in Australia a number of years ago with your family.
Your spouse passed away a number of years ago in Australia.
You made the decision to stay in Australia permanently.
You are a resident of Australia.
You have children.
Your children are residents of Australia and some are under the age of 18.
Your spouse was a member of an overseas retirement benefits scheme (the scheme).
On the death of a member the scheme provides that the spouse of the member is paid a pension for life.
The scheme also provides that if the deceased member leaves eligible children (subject to a maximum of four such children), an allowance shall be paid equal to one quarter of the spouse's pension to each of the children.
You are receiving a pension as the spouse of the deceased member.
Each of your children is receiving payments as an eligible child of the deceased member.
The payments for each of your children are paid into your bank account.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 6-10.
Income Tax Assessment Act 1997 Section 10-5.
Income Tax Assessment Act 1936 Section 27H.
Reasons for decision
Section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer's assessable income includes statutory income amounts which are not ordinary income but are included in assessable income by another provision.
The assessable income of an Australian resident, includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) of the ITAA 1997). Particular types of statutory income are listed in section 10-5 of the ITAA 1997. Included in this list is section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) which provides that annuities and superannuation fund pensions are included in assessable income.
Section 27H of the ITAA 1936 includes in a taxpayer's income the amount of any annuity derived by the taxpayer during the year of income. An annuity is defined to include a 'foreign superannuation pension' (subsection 27H(4) of the ITAA 1936) and at common law, is a series of payments payable for the remainder of the life of the recipient or for a fixed term.
Taxation Determination TD 92/133 discusses who is assessable on the weekly compensation payments made under subsection 17(5) of the Commonwealth Employees Rehabilitation and Compensation Act 1988 (CERCA 1988) to the dependent child of a deceased employee. Paragraph 2 of TD 92/133 states that
'From the wording of this subsection, it is the child, and not a parent or guardian, who benefits from the compensation; that is, the subsection indicates that the compensation is for the benefit of the child. Even if the parent or guardian actually receives the money, we consider there is a constructive receipt of the compensation by the child because it is payable by law for the benefit of the child…'
Although the above discussion is in the context of periodical compensation paid to a dependant child under the CERCA 1988, it remains relevant to other periodical payments made to a dependent child as a result of the death of a parent.
Application to your circumstances
The benefits under the scheme are a benefit paid to the surviving eligible children of a deceased member. The benefit payments cease when:
· the child reaches 18, or
· a child between the age of 18 and 21 is no longer in full time education
In your case, the benefit is a series of payments made over a fixed term. Therefore, the benefit is considered to be an annuity for the purposes of section 27H of the ITAA 1936.
As your children are eligible children under the age of 18, the benefits are paid by the scheme to you as their parent on your children's behalf. However, in accordance with the views expressed at paragraph 2 of TD 92/133, the benefits are considered to be received by each of the children for taxation purposes.
Therefore, the benefits paid to you on behalf of your children are not to be included in your assessable income under section 27H of ITAA 1936.
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