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Ruling

Subject: Foreign Income - Pension

Question 1

Is your foreign pension received after March 2010 exempt income?

Answers

Yes.

This ruling applies for the following period ended

30 June 2010

The scheme commenced on

1 July 2010

Relevant facts

You are an Australian resident for taxation purposes.

You receive foreign country work related superannuation pension from the foreign country.

Your foreign country pension payment is periodic payments receive in every 28 days.

You did not receive any lump sum payment.

There is a tax treaty between Australia and the foreign country.

Your pension from the foreign country is exempt from income tax in the foreign country.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Section 6-10.

Income Tax Assessment Act 1997 Section 10-5.

Income Tax Assessment Act 1936 Section 27H.

International Tax Agreements Act 1953.

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 a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of an Australian resident includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) of the ITAA 1997).

Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list is section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) which provides that annuities and superannuation pensions are included in assessable income.

In determining liability to Australian tax on foreign sourced income received by a resident it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (the 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).

Schedule 4 to the Agreements Act contains the tax treaty between Australia and the foreign country (the foreign country Agreement). The foreign country Agreement operates to avoid the double taxation of income received by Australian and foreign country residents.

The relevant article of the foreign country Agreement deals with pensions and annuities. . The relevant Paragraph of the Article provides that Pensions (including government pensions) and other similar periodic remuneration paid to a resident of Australia shall be taxable only in Australia. However, such income arising in the foreign country (other than payments of portable foreign country superannuation or portable veteran's pension or equivalent portable payments arising in foreign country) shall not be taxed in Australia to the extent that such income would not be subject to tax in foreign country if the recipient were a resident of the foreign country.

Since your pension from the foreign country is exempt in the foreign country, therefore your foreign country pension is also exempt in Australia under section 27H of the ITAA 1936.