Edited version of private ruling

Authorisation Number: 1011705626834

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Ruling

Subject: Foreign Pension

Question:

Is the specific pension you are receiving from Country X exempt from tax in Australia?

Answer:

Yes.

This ruling applies for the following period/s:

Year ended 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on:

1 July 2010.

Relevant facts and circumstances

You are an Australian citizen.

You are also an Australian resident for income tax purposes.

Prior to some time in the 1960's, you were a Country X citizen and resident.

As a Country X veteran, you have been advised that you are eligible to receive a specific pension from Country X from some time in the 2010-11 income years.

In your private ruling application, you state that the pension is not taxable or asset tested in Country X.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Subsection 6-15(2)

Income Tax Assessment Act 1997 Section 11-15

Income Tax Assessment Act 1997 Section 53-10

Income Tax Assessment Act 1997 Subsection 6-15(2)

Reasons for decision

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

Subsection 6-15(2) of the ITAA 1997 provides that any income that is exempt income will not be included in assessable income.

Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 53-10 of the ITAA 1997 which deals with wounds and disability pensions.

Item 5 of the table in section 53-10 of the ITAA 1997 provides that wounds and disability pensions are wholly exempt provided that the payment is:

(a) of a kind specified in subsection 315(2) of the Income and Corporation Taxes Act 1988 (ICTA) of the United Kingdom, and

(b) similar in nature to payments that are exempt under Divisions 52 or 53 of the ITAA 1997.

Subsection 315(2) of the ICTA of the United Kingdom provides that income from wounds and disability pensions are exempt from income tax if they are:

a) wounds pensions granted to members of the naval, military or air forces of the Crown, or

b) disablement or disability pensions granted to members, other than commissioned officers, of the naval, military or air forces of the Crown on account of medical unfitness attributable to or aggravated by naval, military or air-force service.

Section 53-10 of the ITAA 1997 has equivalent wording to the repealed paragraph 23AD(3)(c) of the Income Tax Assessment Act 1936 (ITAA 1936). The application of paragraph 23AD(3)(c) of the ITAA 1936 is considered in Taxation Ruling IT 2586 Wounds and disability pensions paid by foreign government: whether exempt..

Taxation Ruling IT 2586, paragraphs 4 and 5, states that the exemption provided in paragraph 23AD(3)(c) of the ITAA 1936 applies to any such pensions payable by any government and the exemption applies irrespective of the age of the pensioner.

In your case, the pension is paid by the government of Country X. It is paid as a compensatory payment design to counterbalance the impact of a disability that is attributable to, or aggravated by on a veteran's quality of life.

The specific Country X pension you receive is exempt from tax under section 53-10 of the ITAA 1997 as it is a kind specified in subsection 315(2) of the ICTA of the United Kingdom or similar in nature to payments that are exempt under Divisions 52 or 53 of the ITAA 1997.

However, in determining liability to Australian tax on foreign sourced income, it is relevant to consider not only the income tax laws but also any applicable tax treaties contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

A particular Schedule to the Agreements Act contains the tax treaty between Australia and Country X (Country X Convention). The Country X Convention is designed to avoid double taxation with respect to income derived by Australian and Country X residents.

A particular Article of the Country X Convention provides that pensions (including government pensions) paid to a resident of Australia shall be only taxable in Australia. However, such income arising from Country X shall not be taxed in Australia to the extent that such income would not be subject to tax in Country X if the recipient were a resident of Country X.

In your case, the specific Country X pension is not subject to tax in Country X. Accordingly, the specific Country X pension you are receiving is exempt from tax in Australia.