EDITED VERSION OF NOTICE OF PRIVATE RULING
Authorisation Number: 34332
This Ruling is a 'Private Ruling' for the purposes of Part IVAA of the Taxation Administration Act 1953.
YEAR(S) OF INCOME TO WHICH THIS RULING APPLIES:
TAX LAW:
Income Tax Assessment Act 1936 Section 20.
Income Tax Assessment Act 1936 Subsection 27A(1).
Income Tax Assessment Act 1936 Section 27H.
Income Tax Assessment Act 1936 Section 159SJ.
WHAT THIS RULING IS ABOUT:
What is the annual deductible amount of the undeducted purchase price (UPP) calculated in relation to a lifetime pension paid from a retirement fund established and managed outside Australia, where there is no Taxation Ruling or Taxation Determination published which provides for an alternative calculation or Commissioner's discretion under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)?
THE SUBJECT OF THE RULING:
You receive a pension from a retirement fund established and managed outside Australia.
There is no Taxation Ruling or Taxation Determination published which provides for an alternative calculation or Commissioner's discretion under section 27H of the ITAA 1936.
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.
The pension became payable after 30 June 1994.
The pension is payable for life.
COMMENCEMENT OF ARRANGEMENT:
During financial year ended 30 June 2001.
RULING:
The annual deductible amount of the superannuation pension is ascertained in accordance with the formula found in subsection 27H(2) of the ITAA 1936.
EXPLANATION: (This does not form part of the Notice of Private Ruling)
As the pension commenced to be payable after 1 July 1983, section 27H of the ITAA 1936 applies. Under subsection 27H(2), the annual deductible amount of a superannuation pension is ascertained in accordance with the formula:
Annual deductible amount formula:
(A (B-C)) / D
where:
A = is the relevant share of the pension payable to the taxpayer in relation to the year of income (in this case all of the pension is payable to the taxpayer, so A = 1);
B = is the amount of the undeducted purchase price of the pension;
C = is the residual capital value; and
D = is the relevant number in relation to the pension.
The 'undeducted purchase price' of the pension is defined in subsection 27A(1) of the ITAA 1936. The undeducted purchase price of the pension is the sum of contributions, other than employer contributions or contributions paid by another person under an agreement to which the employer was a party, paid to the pension fund towards purchase of the pension.
Under subsection 27H(4) of the ITAA 1936 where a pension is payable during the lifetime of a person, the 'life expectation 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.
Section 20 of the ITAA 1936 requires all income and expenses to be expressed in Australian currency for the purposes of the Act.
In accordance with the currency translation rules contained in section 20 of the ITAA 1936 and clarified in Taxation Ruling IT 2498, pensions received in foreign currency should be translated to Australian currency on the following basis:
(a) where pensions are remitted to Australia - at the exchange rate applicable when each instalment of pension is received; or
(b) where pensions are not remitted to Australia - at the exchange rate applicable at the end of the year of income.
However, in recognition of the difficulties that a strict application of the law may cause some pensioners, translation of remitted pensions on the basis of the average annual exchange rate for the relevant year of income will be accepted.
Similarly, the annual deductible amount may also be translated to Australian dollars at the average annual exchange rate for the year.
The average annual exchange rate is available from the ATO Superannuation Infoline Ph: 131 020.
Paragraph 18 of Taxation Ruling IT 2157 states that where a pension commences during a year of income, then subsection 27H(3) of the ITAA 1936 is to apply. The deductible amount is the proportion of the amount calculated under subsection 27H(2) of the ITAA 1936 that the period for which the pension is payable during the year bears to the full year.
Disclaimer
The Register of Private Binding Advice is published as a public record of the binding advice issued by the ATO. Each piece of advice is based on a specific set of circumstances advised to the ATO and the law in force at the time of the advice, and is considered binding only in respect of the person/s or entity/ies on whose behalf the advice was sought. The Register is a historical record of advice provided, and is not updated to reflect changes in the law, withdrawal of advice or any other change in circumstance. Each piece of advice has been edited to avoid disclosing the identity of the person or entity on whose behalf advice was sought and published advice may therefore not disclose all the relevant facts or circumstances on which the advice was based. For these reasons, advice published in this Register cannot be relied upon as precedent for any other person or entity.