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Edited version of your private ruling
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Ruling
Subject: Assessability of foreign pension income
Question and answer:
Is your foreign pension included in your assessable income in Australia?
No.
This ruling applies for the following periods
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
The scheme commences on
1 July 2013
Relevant facts and circumstances
You are a resident of Australia for income tax purposes.
You are not a citizen of Australia.
You receive a government pension from a foreign country for services rendered as a teacher.
Your pension is not exempt from tax in the foreign country. However, given the amount of your pension you do not have to pay tax on it in the foreign country.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2).
International Tax Agreements Act 1953 Section 4.
International Tax Agreements Act 1953 Sch11-Article18.
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.
Pension income is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
In determining liability to Australian tax on foreign sourced income, it is relevant to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except for some limited provisions).
Schedule 11 to the Agreements Act contains the tax treaty between Australia and country X (the Agreement). The Agreement operates to avoid the double taxation of income derived by Australian and country X residents.
Article 18(2)(a) of the Agreement provides that any pension paid by country X to an individual in respect of services rendered to country X will be taxable only in country X. However, article 18(2)(b) of the Agreement provides that where an individual is both a resident and citizen of Australia, these pensions will be taxable only in Australia.
In your case, you receive a government pension from country X for services rendered as a teacher and you are a resident of Australia for income tax purposes. However, you are not a citizen of Australia.
Therefore, your pension will not be assessable in Australia as Article 18(2) of the Agreement operates to give country X the sole taxing rights over the pension.