EDITED VERSION OF NOTICE OF PRIVATE RULING
Authorisation Number: 34339
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:
Year ended 30 June 2002
Year ended 30 June 2003
TAX LAW:
Income Tax Assessment Act 1936 section 20.
Income Tax Assessment Act 1936 section 26AA.
Income Tax Assessment Act 1936 subsection 27A(1).
WHAT THIS RULING IS ABOUT:
Is the annual deductible amount of the Undeducted Purchase Price (UPP) in relation to a foreign pension which commenced prior to 1 July 1983 calculated in accordance with section 26AA 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.
The commencement date of the pension was prior to 1 July 1983.
The pension is payable for life.
You have provided the total amount of contributions, other than employer contributions, paid to the retirement fund towards the purchase of the pension.
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.
COMMENCEMENT OF ARRANGEMENT:
1 July 2000
RULING:
Is the annual deductible amount of the UPP in relation to a foreign pension which commenced prior to 1 July 1983 calculated in accordance with section 26AA of the ITAA 1936?
Yes, the annual deductible amount of the UPP in relation to a foreign pension which commenced prior to 1 July 1983 is calculated in accordance with section 26AA of the ITAA 1936.
EXPLANATION: (This does not form part of the Notice of Private Ruling)
Former section 26AA of the ITAA 1936 allows the UPP of an annuity to be excluded from the assessable income of the taxpayer for pensions commencing prior to 1 July 1983.
Under former paragraph 26AA(2)(a) of the ITAA 1936 for an annuity payable until the death of the taxpayer, or for a term that will not end before his death, the amount of UPP to be excluded from the assessable income of the taxpayer is calculated by the formula:
Undeducted Purchase Price / life expectancy of taxpayer at commencement of
pension
Pursuant to subsection 26AA(4) of the ITAA 1936, the UPP includes the amount the recipient of the pension or annuity has outlaid to purchase the pension or annuity, for which a tax deduction or rebate has not been allowed or is not allowable. Contributions made by any other person, other than the recipient, will not be taken into account in calculating the UPP.
Former Regulation 4A of the Income Tax Regulations 1936 (ITR 1936) stated that, for the purposes of the definition of life expectancy of the taxpayer in paragraph 26AA(2)(a) of the ITAA 1936, the Australian Life Tables are to be used. A person receiving an annuity or pension arising from the death of the original pensioner cannot claim a deduction for the UPP as the person would not have contributed to the purchase price.
Section 20 of the ITAA 1936 requires all income and expenses to be expressed in Australian currency for the purposes of this 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 Tax Office Superannuation Infoline Ph: 131 020.
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.