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Ruling
Subject: Foreign income
Question
Is the partial disability pension you receive from country X assessable in Australia?
Answer
No.
This ruling applies for the following period:
Year ended 30 June 2011
The scheme commences on:
1 July 2010
Relevant facts and circumstances
You are a dual citizen of country X and Australia.
You are an Australian resident for income tax purposes.
You receive a monthly partial disability pension from country X.
You are paid this pension because you sustained an injury while employed in the defence forces of country X.
The benefit is not subject to tax in country X.
There is a tax treaty between Australia and country X.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 provides that the assessable income of an Australian resident includes the ordinary income derived 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 a resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement.
Australia has signed a double tax agreement with country X.
An article of the agreement provides that wages, salaries and similar remuneration, including pensions, paid from funds of country X for labour or personal services performed as an employee in the discharge of governmental functions of country X shall be exempt from tax in Australia.
Therefore the monthly partial disability pension you receive for your past services to the defence forces of country X is exempt income and not assessable in Australia.