Edited version of your written advice

Authorisation Number: 1012714137274

Ruling

Subject: Undeducted Purchase Price (UPP) of your foreign pension

Question 1

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

Answer

Yes, your annual deductible amount has been calculated in accordance with subsection 27H(2) of the Income Tax Assessment Act 1936 (ITAA1936).

This ruling is binding on the Commissioner for the period outlined in the ruling. You may rely on this ruling for future years where the facts, as stated in the ruling do not change, but the Commissioner will not be bound to the ruling. This means that if your circumstances or the facts relied upon to make the ruling do change, you will be protected from penalties and interest, but liable for any shortfall tax that may apply.

This ruling applies for the following periods:

2010-11 financial year

The scheme commences on:

On or after 1 July 1983

Relevant facts and circumstances

You received a pension from a retirement fund established and managed outside Australia.

There is no international tax agreement between Australia and the country in which the retirement fund is established and managed. Therefore, as a resident of Australia, your pension income is taxable in Australia under the domestic laws of Australia.

All the pension was payable to you.

The pension became payable on or after 1 July 1983.

The residual capital value of the pension is nil.

Your pension was paid on a monthly basis.

Assumptions

This ruling is given on the basis of the facts stated in the description of the scheme as set out above. Any material variation from these facts (including any matters not stated in the description above and any departure from these facts) will mean that the ruling will have no effect. Examples of such variations include but are not limited to commutation, divorce and re-marriage. No entity will then be able to rely on this ruling as the Commissioner will consider that the scheme has been implemented in a way that is materially different from the scheme described.

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)

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Please note that all references to 'pension' cover both pensions and annuities

Summary

Your annual deductible amount and part year deductible amount has been calculated in accordance with subsection 27H(2) of the ITAA1936.

Deductible amount

Section 27H of the 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, where a pension is payable for a specified term of years, the number of years in the term is to be used as the relevant number.

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

Other relevant comments

Please note that from 1 July 2007, the legislation changed in relation to superannuation pensions and benefits paid from complying superannuation funds. However, these changes do not affect any pensions paid from overseas funds which are not considered complying superannuation funds under section 42 of the Superannuation Industry (Supervision) Act 1993 as they are not resident funds.

You will need to include your total foreign pension income in your income tax return and claim your annual deductible amount as advised by your private ruling above.

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