Edited version of your written advice

Authorisation Number: 1013115868477

Date of advice: 31 October 2016

Ruling

Subject: Pensions

Question

Are the pension payments you receive from country X assessable in Australia?

Answer

Yes

This ruling applies for the following period

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts

You are residents of Australia for tax purposes.

You are over 60 years old.

You receive an age pension from country X.

You also receive a pension that is equivalent to an Australian superannuation fund which an employer has an obligation to pay contributions into.

You pay tax in country X on the pensions.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 280-20

Income Tax Assessment Act 1997 Subsection 295-95(2)

Income Tax Assessment Act 1997 Section 301-10

Income Tax Assessment Act 1997 Section 307-10

Income Tax Assessment Act 1997 Section 995-1

International Tax Agreements Act 1953 Section 4

International Tax Agreements Act 1953 Section 5

Reasons for decision

Section 6-5 and section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes ordinary and statutory income derived directly and indirectly from all sources during the income year.

Ordinary income has generally been held to include three categories, namely income from rendering personal services, income from property and income from carrying on a business.

Other characteristics of income that have evolved from case law include receipts that:

● are earned

● are expected

● are relied upon

● have an element of periodicity, recurrence or regularity

Your regular pension payments retain the characteristics of income as they are expected, relied upon and are have the element of recurrence or regularity and are fully assessable as ordinary income.

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country X agreement is listed in section 5 of the Agreements Act.

The country X agreement is located on a website Article 18 of the agreement provides that pensions (other than pensions paid in respect of services rendered in the discharge of government functions) paid to a resident of Australia shall be taxable only in Australia.

Article 19 of the agreement deals with Government Service, provides that pensions paid in respect of services rendered in discharge of governmental functions may be taxed in that State. There is nothing in this article to prevent a pension being taxed in both states.

Therefore, your pension is taxable in Australia.

Division 280 is a guide to the superannuation provisions within the ITAA 1997. Section 280-20 of the ITAA 1997, provides guidance on superannuation during the benefits phase. Division 301 of the ITAA 1997 is the operative provision that sets out the tax treatment of superannuation benefits; this treatment varies depending on the age of the members.

Section 301-10 provides that if you are 60 years or over when you receive a superannuation benefit, the benefit is not assessable income and is not taxable income.

Section 307-10 of the ITAA 1997 provides that certain kinds of payments are not superannuation benefits; the kinds of payments include a payment of a pension or an annuity from a foreign superannuation fund.

A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as follows:

(a) a superannuation fund is a foreign superannuation fund at a time if the fund is not an Australian superannuation fund at that time; and

(b) a superannuation fund is a foreign superannuation fund for an income year if the fund is not an Australian superannuation fund for the income year.

Subsection 295-95(2) of the ITAA 1997 defines Australian superannuation fund as follows:

(a) A superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if:

(b) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and

(c) at that time, the central management and control of the fund is ordinarily in Australia; and

(d) at that time either the fund had no member covered by subsection (3) (an active member) or at least 50% of:

(i) the total market value of the funds assets attributable to superannuation interests held by active members; or

(ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members;

is attributable to superannuation interests held by active members who are Australian residents.

Thus, a superannuation fund that is established outside of Australia and has its central management and control outside of Australia is a foreign superannuation fund. The fact that some of its members may be Australian residents would not necessarily alter this.

A foreign superannuation fund is making pension payments to you, therefore those payments are not superannuation benefits and are accordingly are assessable income.

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