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Ruling

Subject: Lump sum payment and DTA

Questions and answers:

Is the lump sum payment that you have received a pension and therefore subject to articles 17 and 18 of the country X Convention?

No.

Is the lump sum payment that you have received a departing Australia superannuation payment and therefore subject to article 21(3) of the country X Convention?

Yes.

Is the departing Australia superannuation payment that you have received subject to Australian withholding tax?

Yes.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You and your spouse were born in, and are citizens of country X.

For a period you lived and work worked in Australia as a permanent resident.

While working in Australia you contributed to a superannuation fund.

After a period, you and your spouse moved permanently back to country X.

After returning to country X you applied for your Australian superannuation contributions to be paid out.

On receipt of the lump sum payment, you received confirmation from your Australian superannuation fund that the payment was a Departing Australia Superannuation Payment (DASP).

Your DASP had deducted from it Australian withholding tax.

You contacted the country X taxation authorities who stated that you would not receive a credit for tax withheld in Australia but rather would be taxed by the country X authorities on the gross amount.

The country X authorities also stated that you should also claim back the Australian withholding tax applied to your DASP from the Australian Taxation Office under Article 18(2) of the Australian and country X double tax agreement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(3).

Income Tax Assessment Act 1997 Section 6-5.

Income Tax Assessment Act 1997 Section 301-170

Income Tax Assessment Act 1997 Section 301-175

International Tax Agreements Act 1953 Sch23-Art18.

International Tax Agreements Act 1953 Paragraph Sch3-Art3(3).

International Tax Agreements Act 1953 Sch23-Art21.

International Tax Agreements Act 1953 Sch23-Art23.

Reasons for decision

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that ordinary income derived by a foreign resident directly or indirectly from Australian sources is assessable in Australia.

A payment from an Australian superannuation scheme has an Australian source and is assessable in Australia under section 6-5 of the ITAA 1997.

In determining the 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 X agreement is listed in section 5 of the Agreements Act.

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

Articles 17 and 18 of the country X convention deals with pensions and annuities received by residents of Australia and country X.

Pension is not defined in the country X Convention. Where any term is not defined, Article 3(2) of the country X Convention states that any term not defined in the Convention shall have the meaning which it has under the income tax laws of the relevant country.

In determining the ordinary meaning of the word 'pension', it is relevant to refer to the Macquarie Dictionary, 2001, rev. 3^rd edition. The Macquarie Dictionary, 2001, rev. 3^rd edition states that a pension is;

1. a fixed periodical payment made in consideration of past services, injury or loss sustained, merit, poverty, etc.

2. an allowance or annuity.

Under Australian income tax legislation, a payment is assessable as a pension or an annuity if it satisfies the definition of 'pension' or 'annuity' in section 10 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), the definition of 'annuity' in section 16 of the Retirement Savings Accounts Act 1997 (RSA Act) or the ordinary meaning of the terms 'pension' or 'annuity'.

For a payment to satisfy the definition of 'pension' or 'annuity' in section 10 of the SIS Act it must meet the minimum standards prescribed by the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations).

For a payment to satisfy the definition of 'annuity' in section 16 of the RSA Act it must meet the minimum standards prescribed by the Retirement Savings Accounts Regulations 1997 (RSA Regulations).

One of the standards prescribed by the SIS Regulations and the RSA Regulations is that payments must be made at least annually.

The Australian courts have also concluded that the essential characteristic of a pension is only that there are periodical payments (Tubemakers of Australia Ltd v. Federal Commissioner of Taxation 25 ATR 183; 93 ATC 4207).

In your case, you received a one off lump sum payment from an Australian Superannuation fund. Therefore it is not a fixed periodical payment, or a sum paid periodically for a specified or ascertainable period of time.

Accordingly, the lump sum payment you received from your Australian superannuation fund is not a pension under Australian income tax legislation, and therefore does not fall within the scope of Articles 17 and 18 of the country X Convention.

Departing Australia Superannuation Payment

Under section 301-170 of the ITAA 1997, a superannuation lump sum is a departing Australia superannuation payment (DASP) if it;

is paid to a person who has departed Australia; and

is paid:

· in accordance with regulations under the Superannuation Industry (Supervision) Act 1993 or the Retirement Savings Accounts Act 1997 that are specified in regulations made for the purposes of this definition; or

· in accordance with section 67A of the Small Superannuation Accounts Act 1995; or

· by an exempt public sector superannuation scheme (within the meaning of section 10 of the Superannuation Industry (Supervision) Act 1993) and is made in accordance with rules of the fund that are substantially similar to the regulations specified as mentioned in subparagraph (i).

Under subsection 301-175(1) of the ITAA 1997, if you receive a superannuation benefit that is a DASP, the benefit is not assessable income and is not exempt income. Although DASP's are not subject to Australian income tax, they are subject to a final withholding tax under subsection 301-175(2) of the ITAA 1997 and by the Superannuation (Departing Australia Superannuation Payments Tax) Act 2007.

The information that you have supplied provides confirmation that you were in receipt of a DASP. As the payment is a DASP it is not subject to Australian income tax under subsection 301-175(1) of the ITAA 1997, however the payment is subject to a final withholding tax under subsection 301-175(2) of the ITAA 1997 and under Superannuation (Departing Australia Superannuation Payments Tax) Act 2007.

Double tax agreement

There are no specific articles in the country X convention that deal with a DASP.

Article 21(3) of the country X convention provides that items of income not specifically mentioned in the Convention that are derived from Australian sources maybe taxed in Australia and country X.

As a DASP is not specifically mentioned in the country X convention, it is subject to Australian taxation under article 21(3) of the country X convention, and subsequently subsection 301-175(2) of the ITAA 1997 and under Superannuation (Departing Australia Superannuation Payments Tax) Act 2007.

Relief from double taxation

Subparagraph (2)(a) of Article 23 of the country X convention deals with the relief of double taxation and provides that, subject to the provisions of the law of country X, a credit for any tax paid in Australia will be allowed against country X tax payable on income from Australian sources.