Edited version of private ruling

Authorisation Number: 1011799952749

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Ruling

Subject: Foreign income - pension

Question 1

When you become an Australian resident for taxation purposes in the 2012-13 income year, will your country X pension assessable in Australia?

Answer: Yes.

Question 2

When you become an Australian resident for taxation purposes in the 2012-13 income year, will your country Y pension assessable in Australia?

Answer: Yes.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts and circumstances

You are a country X citizen.

You have been granted an Australian permanent resident visa.

You are a retired civil servant of the country X and the country Y.

At present you reside in country X where you receive two pensions, one from the country X Government and one from the country Y.

You state that you will return to Australia in the 2012-13 income year.

Relevant legislative provisions

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

International Tax Agreements Act 1953 Section 4

Reasons for decision

Country X pension

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes the ordinary income you 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 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 and ITAA 1977 so that those Acts are read as one.

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

A paragraph of an article of the country X Agreement deals with Government Service pensions. A subparagraph of that article states that a pension paid by country X in respect of services rendered to country X shall be taxable in country X. However, another subparagraph of that article provides that such pensions shall be taxable only in Australia if the individual is a resident of, and a citizen or national of, Australia.

In your case, you are a citizen of country X, you have been granted an Australian permanent resident visa and you state that you will return to Australia in the 2012-13 income year and will become a resident of Australia from the date of your arrival in Australia. The pension income you derive from the country X is a government service pension. Therefore, the pension is only taxable in country X.

Accordingly, when you become an Australian resident for taxation purposes in the 2012-13 income year, your country X pension will exempt and will not be assessable in Australia under subsection 6-5(2) of the ITAA 1997.

Country Y pension

Australia has entered into a tax treaty with a number of the member countries of the country Y. However, Australia does not have a tax treaty with the country Y.

Accordingly, as you will become an Australian resident for taxation purposes in 2012-13, your country Y pension will be assessable in Australia under subsection 6-5(2) of the ITAA 1997.