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Ruling

Subject: Foreign government army pension

Question 1

Is the Attributable Long Term Forces Family government pension assessable in Australia?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

Year ending indefinitely

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You receive an Attributable Long Term Forces Family government pension due to your spouse's death while he was in service.

Your pension is sourced in Country X and is paid by Country X government. This government pension will last for the rest of your life.

During 2009, you moved to Australia.

You became an Australian citizen when you received permanent residency.

You are an Australian resident for tax purposes.

You have lodged your tax return and paid Australian tax on your foreign pension for the income year.

After lodging your tax return, you have submitted an application form to claim tax exemption from foreign tax on your pension to Country X tax authority.

This application form is for Australian residents receiving pensions or purchased annuities, interest or royalties sourced in Country X.

As a result of your application, the Country X tax authority advised you that the foreign pension is taxable in Country X on the basis it is a Government pension and therefore, your pension is not exempt from Country X tax.

You have paid Country X tax on your pension and as a result, you have been double taxed.

You wish to request for a ruling that your foreign pension should be exempt from tax in Australia due to the fact that you have paid Country X tax on your pension and there is a tax treaty between Australia and Country X.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Division 52

Income Tax Assessment Act 1997 Division 53

Income Tax Assessment Act 1936 Section 27H

Income Tax Assessment Act 1997 Subsection 770-10(1)

Income Tax Assessment Act 1997 Section 770-70

Income Tax Assessment Act 1997 Subsection 770-75(2)

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that 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.

In determining liability to Australian 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 Country X Convention provides that pensions including government pensions and annuities paid to an Australian resident shall be taxable only in Australia.

In your case, your Attributable Long Term Forces Family government pension is considered to be pension for the purposes of the Country X Convention and is assessable only in Australia.

However, there are limited provisions within Division 53 of the ITAA 1997 that provide exemptions for certain payments made by Country X government.

The payments must be similar in nature to pensions that are paid by the Australian Government under the Veterans' Entitlement Act 1986 and in turn those similar pensions must be exempt under Division 52 of the ITAA 1997.

Attributable Long Term Forces Family pension bears no similarity to any of the payments listed under Division 52 of the ITAA 1997. Consequently, the exemption offered under Division 53 of the ITAA 1997 is not applicable.

Therefore, your pension is assessable in Australia under section 6-5(2) and section 27H of the ITAA 1997.

This general advice provides you with the following level of protection:

Interest and penalty protection

You can rely on this general advice to provide you with protection from interest and penalties in the way explained below.

If the advice turns out to be incorrect and you underpay your tax as a result, you will not have to pay a penalty. Nor will you have to pay interest on the underpayment provided you reasonably relied on the advice in good faith. However, even if you don't have to pay a penalty or interest, you will have to pay the correct amount of tax.