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Ruling

Subject: Foreign sourced income

Questions and answers:

Is the pension that you receive from country A assessable in Australia?

Yes.

Are the annuity payments that you receive from country A assessable in Australia?

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You moved from county A to Australia.

You receive a monthly pension from country A as a result of your service in the country A private sector.

You also receive income from an annuity that you purchased from insurance company in country A. You have been paying a small monthly premium for approximately 40 years. The policy has recently matured.

You have paid income tax on both sources of income to the government of country A.

You are an Australian resident for income tax purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997, Section 6-5

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

Income Tax Assessment Act 1997, Section 6-10

Income Tax Assessment Act 1936, Section 27H

Reasons for decision

Section 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. Assessable income that is not ordinary income but is assessable under a specific provision is called statutory income and is assessable under section 6-10 of the ITAA 1997.

Annuities are statutory income and are specifically made assessable (for domestic purposes) under section 27 H of the Income Tax Assessment Act 1936 (ITAA 1936). A pension is ordinary income and therefore assessable for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The country A Agreement is listed in section 5 of the Agreements Act.

The country A agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The country A agreement operates to avoid the double taxation of income received by residents of Australia and country A.

Country A pensions

Article 18(1) of the country A agreement provide that any pension derived from sources within country A by an individual who is a resident of Australia shall be exempt from tax in country A and fully assessable in Australia.

Therefore, the country A pension received by you is assessable only in Australia under section 27H of the ITAA 1936, and forms part of your assessable income under section 6-5 of the ITAA 1997.

Annuities

Notwithstanding the provisions of paragraph 1 of Article 18, paragraph 2 of Article 18 of the country A agreement provide pensions or annuities from country A that are paid to a resident of Australia will be exempt from tax in country A to the extent that such pensions and annuities are included in taxable income in Australia. Not withstanding these provisions, an annuity paid to an individual who is a former resident of country which has been purchased by that individual by way of a lump sum cash consideration from an insurer in the course of that insurer's insurance business carried on in country A may be taxed in country A.

Therefore, as the annuity that you receive was not purchased by way of a lump sum cash consideration from an insurer in the course of that insurer's insurance business it will be exclusively assessable in Australia under section 27H of the ITAA 1936, and forms part of your assessable income under section 6-10 of the ITAA 1997.

Conclusion

As you are a resident of Australia for tax purposes, you must declare your country A pension and annuity income in your Australian income tax return as it is made assessable under section 27H of the ITAA 1936.

Australian competent authority

Where a person considers that the actions of Australia or a treaty partner result or may result in taxation not in accordance with a particular tax treaty, the person may request competent authority assistance.

The competent authority will seek to resolve cases of taxation contrary to the provisions of a tax treaty, such as, the resolution of juridical and economic double taxation or, where a particular class of income is taxed in contravention of a rule in the tax treaty.

You are a resident of Australia under article 4 of the DTA. Country A has found you to be a resident of country A under this article. As you have conflicting results from the application of the DTA from Australia and country A you may need to get in touch with the Australian competent authority to resolve this issue.

Contact can be made by either post or email:

Email: australiancompetentauthority@ato.gov.au

Post: Australian Competent Authority
International Strategy and Operations
Large Business and International
PO Box 900
CIVIC SQUARE ACT 2608