1012812592102 | Legal database

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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1012812592102

Ruling

Subject: Foreign pension

Question and answer

Is the monthly pension you receive from Country A taxable in Australia?

Yes.

This ruling applies for the following periods:

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You are an Australian resident for tax purposes and an Australian citizen.

You are a citizen of Country A.

You previously worked in Country A.

As part of your employment you were given several options for the payment of a pension in your retirement. You opted for a monthly annuity that will be provided for as long as you live.

The monthly defined benefit is paid to you by a retirement service in Country A.

You have been advised by the retirement service that your payment is considered a pension for tax purposes.

A percentage of each monthly payment is mandatorily withheld for income tax purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6-5(2)

International Tax Agreements Act 1953 Section 3AAA

International Tax Agreements Act 1953 Section 5

Reasons for decision

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

Pension payments are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

The County A Convention specifically deals with the taxation of pensions and annuities income. This Article provides that, subject to Article A of the Country A Convention, Australia has the sole taxing rights over pensions and annuities income paid to an individual who is a resident of Australia.

The pension you receive from a retirement service in Country A comes within the definition of a pension under the Article B of the Country A Convention.

Article 18 of the Country A Convention explains that remuneration, including pensions, paid from funds of Country A for labour or personal services performed as an employee in the discharge of governmental functions to a citizen of Country A shall be exempt from tax in Australia.

The relevant documents and practices in relation to Article A of the Country A Convention indicate that Country A considers the phrase governmental function should be given a very narrow interpretation and that Australia has accepted this position for the purposes of the Country A Convention. This interpretation excludes non-core government functions from being a governmental function for the purposes of Article A of the Country A Convention.

Paragraph A of Taxation Ruling TR 2005/8 Income tax: the meaning of particular terms in the Government Service Articles of Australia's tax treaties provides that the term in discharge of governmental functions in Country A is understood to encompass functions traditionally carried on by a government such as military, diplomatic service, tax administrators and activities that directly support the carrying out of those functions. It would not include functions that are commonly found in the private sector (e.g. education, health care and utilities).

You were not engaged in the discharge of government function for the purposes of Article A of the Country A Convention. As such, the pension you receive is not covered by Article A of the Country A Convention. Instead, it would fall for consideration under Article C of the Country A Convention.

Accordingly the monthly pension you receive from Country A is assessable in Australia under subsection 6-5(2) of the ITAA 1997.

Ruling restricted to four years

The Commissioner does not generally provide rulings for indefinite periods due to potential changes to the law in the future and also to potential changes to the facts and circumstances of the case.

For this reason this ruling has been restricted to the period covered by the four financial years up to the year ended 30 June 2018. However, this does not mean that you are required to apply for a new ruling after four years. In the absence of any change to the legislation or material change to your circumstances, the interpretation of the law as explained in this ruling will continue to apply.

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