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This edited version has been archived due to the length of time since original publication.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: 1051226513167

Date of Advice: 17 May 2017

Ruling

Subject: Assessable Pension and DTA

Questions and answers:

Yes.

No.

This ruling applies for the following periods:

Year ended 30 June 2006

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

The scheme commences on

1 July 2006

Relevant facts and circumstances

You are a citizen of the Australia by birth and a citizen of Country Y.

You were employed by the Australian Public Service for a number of years.

As a consequence of your Australian service you held a Commonwealth Government of Australia superannuation scheme.

After your service you move to Country Y where you lived as a permanent resident with your spouse who is a Country Y national.

After a number of years you returned to Australia for a period to satisfy the Australian residency requirements.

After your retirement you began receiving pension payments.

Your pension income has been taxed by the ATO at non-resident tax rates.

You intend to permanently reside in Country Y.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Assessable income

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident includes all ordinary income derived from all Australian sources.

Pension payments derived from Australian sources are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

Double Tax Agreement

In determining liability to Australian tax on Australian sourced income received by a foreign resident it is necessary to consider not only the income tax laws but also any applicable tax treaty.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the 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 Y Agreement is listed in section 5 of the Agreements Act.

The Country Y agreement is located on the Austlii website (http://www.austlii.edu.au/) in the Australian Treaties Series database. The Country Y agreement operates to avoid the double taxation of income received by residents of Australia and Country Y.

Article 18 of the Country Y Convention provides that, subject to Article 19 of the Country Y Convention, pensions and other remuneration paid to an individual who is a resident of the Country Y in consideration of past employment shall be taxable only in the Country Y.

Article 19 of the Country Y Convention provides that wages, salaries and similar remuneration, including pensions, paid from the funds of the Australian government for labour or personal services performed as an employee in the discharge of governmental functions to an Australian citizen, shall be taxable only in Australia.

Taxation Ruling TR 2005/8 Income tax: the meaning of particular terms in the Government Service Articles of Australia's tax treaties, discusses the meaning of particular terms in the Government service articles of the Australian tax treaty.

Paragraph 88 of TR 2005/8 refers to Article 19 of the Country Y Convention and mentions that the term 'in discharge of the governmental functions' is understood in the USA to encompass functions traditionally carried on by a government. It does not include functions that are commonly found in the private sector such as education, health care and utilities. It is limited to core, traditional functions discharged by the government such as military service, tax administration and defence.

In your case, you are not an Australian resident for taxation purposes. You are in receipt of a government pension from the Commonwealth Government of Australia. This payment is considered a pension from the Australian government for services you performed as an employee in the discharge of governmental functions. As such, this pension is taxable in Australia.

Additional information

It appears that under paragraph 3 of Article 1 of the Country Y Convention that the Country Y could choose to tax your pension despite Article 19, as you are a citizen of the Country Y. If the Country Y does impose tax on your pension, then under subparagraph (1)(a) of Article 22 of the Country Y Convention, the Country Y would have to allow a credit for the tax paid to Australia.

It should be noted that paragraph 2 of Article 22 of the Country Y Convention will not apply in your situation to require Australia to allow a credit for any tax paid in the Country Y. This is because any tax imposed by the Country Y would have been done so in accordance with paragraph 3 of Article 1 of the Country Y Convention, which is solely due to your Country Y citizenship.

Years ruled on

It is noted that you asked for the private ruling to apply for an indefinite period into the future so long as you remain a permanent resident of the Country Y. The Commissioner does not rule for indefinite or extended periods as there may be changes to the facts of the arrangement or the law in question. Also, a public ruling may issue which affects the private ruling.

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