Edited version of your written advice

Authorisation Number: 1012752531954

Ruling

Subject: superannuation benefits

Question

Is any part of your foreign pension that relates to your Australian contributions, other than as apart of an undeducted purchase price (UPP) deductible amount, excluded from your assessable income in Australia?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You lived and worked in country A for several years.

You moved to Australia.

You had a superannuation fund in country A that you contributed to while working there.

You also contributed to the superannuation fund with after tax money from Australia.

You have been receiving a monthly pension payment from the fund.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Section 27H

International Tax Agreements Act 1953 Section 4

Superannuation Industry (Supervision) Act 1993 Section 10

Superannuation Industry (Supervision) Act 1993 Section 45

Reasons for decision

Summary

Your foreign pension payments are regarded as assessable income in Australia and should be included in your tax return. Apart from the UPP deductible amount, no component of your pension payment is regarded as tax free.

Detailed reasoning

Assessable income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes the ordinary income they derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Section 6-10 of the ITAA 1997 further provides that assessable income includes statutory income amounts which are not ordinary income but are included in assessable income by another provision. Subsection 6-10(4) of the ITAA 1997 states that the assessable income of an Australian resident includes statutory income from all sources, whether in or out of Australia.

Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list is section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) which provides that annuities and pensions paid from foreign superannuation funds or foreign schemes to provide superannuation benefits are included in assessable income.

Some foreign payments, for example, certain war time compensation payments are specifically exempted under the ITAA 1997. However your pension from country A is not among those listed as exempt. As the payments are not exempt by the operation of Australian tax laws it is then necessary to look at the terms of any international agreement between Australia and country A contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act provides that the Agreements Act incorporates the ITAA 1936 and ITAA 1997 and those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited situations that are not relevant in the present case).

Paragraph (1) of Article 18 of the country A Agreement provides that pensions and annuities arising in country A and paid to a resident of Australia are taxable only in Australia.

As you are an Australian resident, your pension payments from country A are assessable income under section 27H of the ITAA 1936 and should be declared on your Australian tax return.

Other information

The superannuation system in Australia changed from 1 July 2007. Special rules may apply to various components of superannuation benefits. Division 301 of the ITAA 1997 sets out the tax treatment of superannuation benefits received by members of complying superannuation funds.

Superannuation fund is defined in section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA) to be a regulated superannuation fund. Complying superannuation fund is defined in section 45 of SISA.

Your superannuation fund in country A is not a regulated superannuation fund or a complying superannuation fund for ITAA 1997 purposes.

As the superannuation fund is not a regulated or complying superannuation fund for Australian tax purposes, the various special rules do not apply.

For example, some undeducted contributions made to a superannuation fund may be returned to the member as a tax free component. However these special rules in relation to superannuation benefits do not apply to your benefits from the country A fund. Also, no deduction is allowed for your contributions to the superannuation fund as it is not a complying superannuation fund for tax purposes.

It is acknowledged that you made personal superannuation contributions from your after tax income, however no exemption relates to this portion of your pension benefit other than as part of an undeducted purchase price (UPP) deductible amount.

As previously advised, you are entitled to a deductible amount in respect of the UPP of your overseas pension. Your Australian as well as country A contributions are taken into account in calculating your UPP which in turn reduces your assessable pension.

You may request a ruling in relation to calculating your UPP. Please ensure you include all relevant documents and information.

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