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Ruling

Subject: Foreign pension - Deductions for bank charges on telegraphic transfer and currency conversion

Question

Are the bank charges for telegraphic transfer and currency conversion to Australian dollars deductible expenses?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are an Australian resident for tax purposes.

You lived and worked in Country X previously before coming to Australia to live.

Recently you were granted a foreign pension from Country X.

You receive the pension every month.

You are charged fees by the bank for the telegraphic transfer and the conversion to Australian currency of the foreign pension.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Section 6-15

Income Tax Assessment Act 1997 Section 8-1

International Tax Agreements Act 1953

Reasons for decision

General deduction provisions are covered by subsection 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) which states:

You can deduct from your assessable income any loss or outgoing to the extend that:

- it is incurred in gaining or producing your assessable income or
- it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income

It is necessary to ascertain whether your foreign pension is an assessable income and whether the bank transfer and currency conversion charges are deductible in the sense that it is incurred in gaining or producing your foreign pension.

Subsection 6-5(2) and subsection 6-10(4) of the 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.

Pensions, either government pensions or annuities, are ordinary income for the purposes of sections 6-5(2) and 6-10(4) of the ITAA 1997.

In determining liability to tax on foreign-sourced income received by an Australian resident, it is necessary to consider not only the income tax laws but also any applicable tax treaties.

These tax treaties operate to avoid the double taxation of income received by Australian and foreign residents. There is a tax treaty between Australia and Country X (Country X Convention).

An article of the Country X Convention states that pensions (including government pensions) and annuities sourced in Country X and paid to an Australian resident are taxable only in Australia.

Consequently, your monthly pension payments from Country X are considered to be assessable income for the purposes of the Country X Convention and are taxable only in Australia.

The outgoing costs (telegraphic transfer and currency conversion costs) are incurred in "gaining" (access to) your assessable income.

Therefore, the telegraphic transfer and currency conversion charges are deductible under subsection 8-1 of the ITAA 1997.