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Edited version of your private ruling
Authorisation Number: 1012448330174
Ruling
Subject: International pensions/annuities
Question and answer
As an Australian resident for tax purposes will your annuity payments that are sourced in the in Country X be assessable in Australia?
Yes.
This ruling applies for the following period:
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
The scheme commences on:
1 July 2013
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You permanently relocated to Australia from Country X in 200Y.
You are an Australian resident for tax purposes from 200Y.
You are a citizen of the Country X.
You made contributions to a section 403(b) plan in your working life. This was not an employer sponsored plan.
The plan has provided you retirement benefits through the purchase of an annuity contract. You receive periodically, at stated times, annuity payments from the insurance company. This Company is a Country X resident insurance Company.
An actuarially determined minimum pension must be taken each year which can be paid to you at a determined frequency in that year.
The retirement plan is not a superannuation fund for Australian tax law purposes.
Further contributions to the fund cannot be made after retirement.
Your entitlements can be taken as a lump sum at any time.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 27H.
International Tax Agreements Act 1953 Section 4.
International Tax Agreements Act 1953 Schedule Sch2.
International Tax Agreements Act 1953 Schedule Sch2A.
International Tax Agreements Act 1953 Subsection Sch2-Art18(3).
International Tax Agreements Act 1953 Subsection Sch2-Art18(5).
Income Tax Assessment Act 1997 Subsection 6-10(4).
Income Tax Assessment Act 1997 Section 10-5
Reasons for decision
Subsection 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes statutory income from all sources, whether in or out of Australia.
Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list is section 27H of the Income Tax Assessment Act 1936 which provides that annuity amounts are included in assessable income.
In determining liability to Australian tax on foreign sourced income received by a resident taxpayer, it is necessary 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. In the event of inconsistent provisions, the Agreements Act overrides the ITAA 1997 (except in some limited situations).
Schedule 2 to the Agreements Act contains the double tax convention between Australia and Country X.
Paragraph (3) of Article 18 of the Convention provides that annuities paid to an individual who is a resident of Australia shall be taxable only in Australia.
Paragraph (5) of Article 18 of the Convention defines 'annuities' as stated sums paid periodically at stated times during life, or during a specified or ascertainable number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered or to be rendered).
The annuity received by you from the 403b plan comes within the definition of an 'annuity' under paragraph (3) of Article 18 of the Convention.
As you are a resident of Australia for income tax purposes, paragraph (3) of Article 18 of the Country X Convention applies and the annuity income received from Country X will form part of your assessable income under subsection 6-10(4) of the ITAA 1997.