Edited version of private ruling

Authorisation Number: 1011690908921

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fac sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Foreign pension

Question

Is the lump sum pension payment you received from Country X assessable in Australia?

Answer

Yes

This ruling applies for the following period

Year ending 30 June 2010

The scheme commences on

1 July 2009

Relevant facts and circumstances

You are an Australian resident for tax purposes.

In the 2009-10 income year, you began to receive a pension from Country X.

The pension is for previous employment in Country X.

You received an amount for an annual pension plus a lump sum.

The lump sum is tax free in Country X.

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 6-5(2)

International Tax Agreements Act 1953 section 4

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

A pension is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining the liability of an Australian resident to Australian tax on foreign sourced income, it is also necessary to consider the provisions of any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).

A schedule to the Agreements Act contains the tax treaty between Australia and Country X, which operates to avoid the double taxation of income received by Australian and Country X residents.

An article of the tax treaty provides that any pension or annuity derived from Country X by an Australian resident is taxable only in Australia.

Accordingly, as you are an Australian resident, your pension from Country X, including the lump sum amount, is included in your assessable income in the year of receipt under subsection 6-5(2) of the ITAA 1997.

Lump sum in arrears tax offset

A taxpayer who receives a lump sum payment containing an amount that accrued in an earlier year or years of income may be entitled to a tax offset.

The lump sum payment in arrears tax offset is designed to alleviate the problem of more tax being payable in the year in which the lump sum payment is received than would have been payable if the lump sum payment had been taxed in the years in which it accrued.

To be eligible for the lump sum payment in arrears tax offset, a taxpayer must have received a lump sum payment of eligible income that accrued, in whole or in part, in an earlier year or years of income, and the amount of the eligible lump sum that accrued before the year of receipt must not be less than 10% of the normal taxable income of the year of receipt.

The ATO will calculate any applicable offset when you lodge your income tax return and include a schedule of additional information showing the amount of payment in arrears for each income year. Further information about the additional information required can be found in the TaxPack 2010 Supplement at question 24, Other income.

A lump sum payment in arrears tax offset calculator is also available on our website www.ato.gov.au.