Edited version of your private ruling

Authorisation Number: 1012561967273

Ruling

Subject: The undeducted purchase price of your foreign pension

Question 1

Are you entitled to a deductible amount in respect of the undeducted purchase price (UPP) of your Australian pension?

Question 2

Are you eligible for a superannuation pension tax offset?

Answer 1

Yes, your annual deductible amount is calculated in accordance with subsection 27H(2) of the Income Tax Assessment Act 1936 (ITAA 1936).

Answer 2

No, you are not entitled to a pension tax offset in respect of your pension from the fund.

This ruling is binding on the Commissioner for the period outlined in the ruling.

This ruling applies for the following period:

2006-07 financial year

The scheme commenced

On or after 1 July 1983

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

· Your assessable income includes your pension income.

· All the pension is payable to you.

· Your pension is payable for life, and is not reversionary.

· ATO records confirm the UPP of your pension.

· The residual capital value of the pension is nil.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 27H

Income Tax Assessment Act 1936 Subsection 27H(2)

Income Tax Assessment Act 1936 Subsection 27H(3)

Income Tax Assessment Act 1936 Subsection 27H(4)

Income Tax Regulations 1936 Regulation 9

Income Tax Assessment Regulations 1997 Regulation 960-50.01

Reasons for decision

Summary

Your annual deductible amount is calculated in accordance with subsection 27H of the ITAA 1936 and will apply for the 2006-07 financial year.

You are not entitled to a pension tax offset in respect of your pension.

Detailed reasoning

Question 1: Are you entitled to a deductible amount in respect of the undeducted purchase price (UPP) of your Australian pension?

UPP deduction for years prior to 1 July 2007

Section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) operates to include in assessable income, the amount of any pension derived by a taxpayer during a year of income reduced by the annual deductible amount. The deductible amount is deemed to be a return of part of your contribution towards the purchase of the pension.

The deductible amount is calculated based on the UPP of your pension. The UPP is the amount you contributed towards the purchase price of your pension for which you did not claim, and were not eligible to claim, a tax deduction in Australia. Contributions made by an employer or by another person under an agreement to which the employer was a party, cannot form part of the UPP of the pension.

Subsection 27A(1) of the ITAA 1936 contains the definition of purchase price in relation to a superannuation pension. Subparagraph (a)(ii) of that former subsection stated that 'purchase price' means the total amount of contributions to a superannuation fund made to obtain superannuation benefits consisting of a pension and other benefits such as a lump sum.

How the annual deductible amount is calculated

Under subsection 27H(2) of the ITAA 1936, the annual deductible amount of a superannuation pension is ascertained in accordance with the formula:

A = is the relevant share of the pension payable to the taxpayer in relation to the year of income (if all of the pension is payable to the taxpayer, A = 1)

B = is the amount of the UPP of the pension

C = is the residual capital value, and

D = is the relevant number in relation to the pension.

There is no Taxation Ruling or Taxation Determination published which provides for an alternative calculation or Commissioner's discretion under section 27H(3) of the ITAA 1936.

Under subsection 27H(4) of the ITAA 1936, when a pension is payable during the lifetime of a person, the 'life expectation factor' is to be used as the relevant number.

Regulation 9 of the Income Tax Regulations 1936 states that for the purposes of the definition of life expectation factor in subsection 27H(4) of the ITAA 1936, the Australian Life Tables published by the Australian Government Actuary are to be used.

The factors for determining the life expectancy are:

1. the date the pension first became payable, and

2. your age when the pension commenced.

By substituting the information provided into the formula, the annual deductible amount is obtained.

UPP deduction for years after 1 July 2007

Since 1 July 2007 superannuation in Australia underwent a major change. Included in this change was the way in which deductions for a UPP of Australian pensions were treated. The UPP deductible amount is now included in the tax free component amount by the superannuation provider prior to issuing a payment summary and no deduction is shown in the individual's tax return. Therefore it is no longer necessary for you to declare a UPP in your tax returns after 1 July 2007.

Question 2: Are you eligible for a superannuation pension tax offset?

Superannuation annuity and pension tax offset

To be eligible for the superannuation pension offset, your pension must be a 'rebatable superannuation pension'. Former subsection 159SJ(1) of the ITAA 1936 defined the meaning of rebatable superannuation pension.

A rebatable superannuation pension must be a superannuation pension paid from a retirement savings account or paid from a complying superannuation fund. (The pension may also be paid from a fund under subparagraph 159SJ(1)(a)(ii)-(iv) of the ITAA 1936, however these provisions are not applicable to your case.) Some pensions, are paid directly from Consolidated Revenue which is not a fund and as such these pensions would not generally be rebatable superannuation pensions.

In your case, ATO records confirm your pension, is paid from Consolidated Revenue. Therefore your pension is not rebatable and you are not entitled to a pension tax offset in respect of this pension.

Important information to note

Income tax returns may be amended within two years from the date upon which the Commissioner gives notice of the assessment to the individual for assessments for the 2004-05 and later financial years.

In regards to assessments that fall outside the two/four year period, you will need to lodge an objection request and a request for an extension of time to lodge an objection form.

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