Edited version of your private ruling

Authorisation Number: 1011940947310

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Subject: Foreign income - pensions

Question 1

Will your pension payable from a Country A employer sponsored superannuation fund from be included in your assessable income in Australia?

Answer: Yes

Question 2

Are you entitled to claim a deduction for undeducted purchase price from your pension payable from a Country A employer sponsored superannuation fund?

Answer: Yes

Question 3

Will your government pension payable from the Country A be included in your assessable income in Australia?

Answer: Yes

Question 4

Are you entitled to claim a deduction for undeducted purchase price for your government pension payable from the Country A?

Answer: Yes

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You receive regular pension from a Country A from a employer sponsored superannuation fund. Regular amounts were deducted from your wage.

You receive a weekly government pension from the Country A. Regular amounts were deducted from your wage.

You are an Australian resident.

You have no foreign insurance policies, shares or units in unit trusts or interests in other superannuation funds.

Relevant legislative provisions

Section 27H of the Income Tax Assessment Act 1936

Section 4 of the International Tax Agreements Act 1953

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

Section 6-10 of the Income Tax Assessment Act 1997

Subsection 6-10(4) of the Income Tax Assessment Act 1997

Section 10-5 of the Income Tax Assessment Act 1997

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 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 other provisions about assessable income. Included in this list is section 27H of the ITAA 1936 which provides that annuities and superannuation pensions are included in assessable income.

An amount paid as a superannuation pension would form part of assessable income under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936).

Section 27H of the ITAA 1936 requires pension or annuity payments, other than eligible resident non-complying superannuation fund payments, to be included in the assessable income of a taxpayer. It states that:

Subject to subsection (1A) and Division 54 of the Income Tax Assessment Act 1997, the assessable income of a taxpayer of a year of income shall include:

(a) the amount of any annuity derived by the taxpayer during the year of income excluding, in the case of an annuity that has been purchased, any amount that, in accordance with the succeeding provisions of this section, is the deductible amount in relation to the annuity in relation to the year of income; and

(b) the amount of any payment made to the taxpayer during the year of income as a supplement to an annuity, whether the payment is made voluntarily, by agreement or by compulsion of law and whether or not the payment is one of a series of recurrent payments...

In determining liability to Australian tax on foreign source income, it is necessary to consider not only the income tax laws but also any applicable double tax agreement.

Australia has a tax treaty with Country A. The Country A Convention operates to avoid the double taxation of income received by Australian and Country A residents.

Article X of the Country A Convention provides that pensions (including government pensions) and annuities paid to a resident of Australia shall be taxable only in Australia.

Therefore your superannuation pensions from Country A will be included in your assessable income in Australia as you are an Australian resident.

Undeducted Purchase Price

The Undeducted Purchase Price (UPP) deductible amount which reduces the tax paid on pension income represents the amount of a taxpayer's personal contributions to their superannuation fund for which they did not receive a tax deduction. You have made contributions to the Country A employer sponsored superannuation fund which means there will be a deductible amount.

A Taxation ruling explains how the Commissioner will exercise his discretion in determining the deductible amount of a government pension scheme received under the Country by Australian residents. The taxable amount of these pensions can generally be reduced by the pension's undeducted purchase price.

The ruling applies to all pensions from the Country A which are based on a person's contributions (contributory pensions) except some categories of pensions.

The ruling sets out the method for calculating the deductible amount for various types of pensions. However, if the pension recipient chooses not to use the calculations set out in the ruling, an alternative method will be acceptable (with some exceptions) under which the deductible amount is a percentage of the annual amount of the pension (expressed in Australian currency).

The Tax Office will not apply the provisions of sec 20 and Taxation Ruling IT 2498 strictly in relation to the conversion of foreign currency. It will accept translation of pensions sent to Australia on the basis of the average annual exchange rate for the relevant year of income. If the pension is translated to Australian dollars at the average exchange rate or at the rate applicable at the end of a year of income:

(a) the deductible amount of the undeducted purchase price should be calculated in Country A currency:

(b) the gross amount of the pension in Country A currency should be reduced by the deductible amount: and

(c) the net amount should be translated to Australian dollars at the relevant exchange rate (TR 93/13)