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This edited version has been archived due to the length of time since original publication.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.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1012834414872

Date of advice: 7 July 2015

Ruling

Subject: Private ruling for Undeducted Purchase Price (UPP)

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 is calculated in accordance with subsection 27H(2) of the Income Tax Assessment Act 1936 (ITAA 1936).

This ruling applies for the following period:

Year ended 30 June 2014

The scheme commenced on:

1 January 200X

Relevant facts and circumstances

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

The international tax agreement between Australia and the country in which the retirement fund is established and managed provides that the pension is taxable in Australia.

Your assessable income includes your pension income.

All the pension is payable to you.

The pension became payable on or after 1 January 200X.

The pension is payable for life.

The total amount of contributions, other than employer contributions, paid to the retirement fund towards the purchase of the pension.

The residual capital value is nil.

Your pension is paid on a regular basis.

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(4)

Income Tax Assessment Act 1997 Section 960-50

Income Tax Regulations 1936 Regulation 9

Other references:

Taxation Determination TD 2006/17

Reasons for 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 deductible amount. The deductible amount is deemed to be a return of part of your contribution towards the purchase of the pension.

The calculation of the deductible amount is 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.

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

A (B - C)

D

A = relevant share of the pension payable to you (if all the pension is payable to you then A = 1)

B = is the amount of the UPP of the pension

C = is the residual capital value (if any)

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

This 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) for the ITAA 1936, when a pension is payable during the lifetime of a person, the 'life expectations 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:

Other relevant comments

As a general rule, the deductible amount is translated to Australian currency using the same exchange rate applying to the pension. The average exchange rates are available from your superannuation information line on 13 10 20 or visit our website at ato.gov.au/super

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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