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Ruling
Subject: Foreign pension income
Question
Is the pension that you receive from Country X assessable in Australia?
Answer
Yes
This ruling applies for the following period:
Year ending 30 June 2011
The scheme commenced on:
1 July 2010
Relevant facts and circumstances
You are an Australian resident for tax purposes.
You are under pension age.
You receive an Australian disability support pension.
You also receive a pension from Country X. Your father received a disability support pension and after he passed away this pension was partially passed onto you. Surviving children are entitled to the pension if they were classified as having a disability at the time the deceased was receiving the disability pension.
Tax is paid on this pension in Country X.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Subsection 6-15(2)
Income Tax Assessment Act 1997 Subdivision 52A
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, whether in or out of Australia, during the income year.
Pensions are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
Subsection 6-15(2) of the ITAA 1997 provides that any income that is exempt income will not be included in assessable income.
Division 52 of the ITAA 1997 deals with certain pensions, benefits and allowances that are exempt from income tax.
Subdivision 52A of the ITAA 1997 deals with exempt payments under the Social Security Act 1991. It is this Subdivision that provides exemption from income tax for the Australian Disability Support Pension paid to a person under age pension age. The subdivision only relates to the Australian Social Security Act 1991. A similar pension paid under another country's legislation is not exempt under this subdivision.
In determining liability to Australian tax on foreign source income, it is necessary to consider not only the Australian income tax laws but also if there is any applicable tax treaty contained in the International Tax Agreements Act 1953. If there is no relevant tax treaty, the income will be taxed according to Australian income tax laws.
Country X does not currently have a tax treaty with Australia. Accordingly, the pension you receive from Country X is ordinary income and assessable under subsection 6-5(2) of the ITAA 1997.