Edited version of your private ruling

Authorisation Number: 1012480173084

Ruling

Subject: Foreign source pension income

Questions and answers:

1. Is your foreign sourced government superannuation pension assessable in Australia?

No.

2. Is your foreign sourced war disablement pension assessable in Australia?

No.

This ruling applies for the following periods:

Year ending 30 June 2010

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on:

The scheme has commenced.

Relevant facts and circumstances

You are an Australian resident for taxation purposes.

You receive a country X government superannuation pension which is not taxable in country X.

You also receive a country X government war disablement pension which is not taxable in country X.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 27H

Income Tax Assessment Act 1997 subsection 6-5(2)

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 subsection 6-10(4)

Income Tax Assessment Act 1997 section 10-5

Income Tax Assessment Act 1997 section 53-10

International Tax Agreements Act 1953 section 4

International Tax Agreements Act 1953 Schedule 4

International Tax Agreements Act 1953

Reasons for decision

Foreign government superannuation pension

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.

Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of an Australian resident includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) of the ITAA 1997).

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 (ITAA 1936) which provides that annuities and pensions paid from a foreign superannuation fund or foreign scheme for the payment of superannuation benefits are included in assessable income.

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 contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

Schedule 4 to the Agreements Act contains the double tax convention between Australia and country X (the Convention). The Convention operates to avoid the double taxation of income received by Australian and country X residents.

An article of the Convention deals with pensions and provides that a pension paid to a resident of Australia shall be taxable only in Australia. However, where the pension has a country X source and is not taxable in country X, it will also not be taxable in Australia.

In your case, you are an Australian resident in receipt of a country X government pension which is not taxable in country X. Accordingly your pension is not taxable in Australia under the country X Convention.

In your situation, the Agreements Act overrides section 27H of the ITAA 1936 which would otherwise operate to include the government superannuation pension you receive in your assessable income.

Your country X government superannuation pension is not assessable income for Australian income tax purposes.

Foreign government war disablement pension

Subsection 6-15(2) of the ITAA 1997 provides that any income that is exempt income will not be included in assessable income.

Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 53-10 of the ITAA 1997 which deals with wounds and disability pensions.

Item 5 of the table in section 53-10 of the ITAA 1997 provides that wounds and disability pensions are wholly exempt provided that the payment is:  

· of a kind specified in relevant country X legislation, and

· similar in nature to payments that are exempt under Divisions 52 or 53 of the ITAA 1997.

Section 641 of the Income Tax (Earnings and Pensions) Act 2003 (UK) provides that pensions relating to wounds, disability or medical unfitness attributable to service in the armed forces of the Crown will be exempt from income tax.

Section 53-10 of the ITAA 1997 has equivalent wording to the repealed paragraph 23AD(3)(c) of the ITAA 1936. The application of paragraph 23AD(3)(c) of the ITAA 1936 is considered in Taxation Ruling IT 2586 Income tax: wounds and disability pensions paid by foreign government: whether exempt (IT 2586).

IT 2586 states that the exemption provided in the repealed paragraph 23AD(3)(c) of the ITAA 1936 applies to any such pensions payable by any government which encompasses pensions paid by any foreign government.

Division 52 of the ITAA 1997 specifies that invalidity service pensions and those relating to defence force caused incapacity are exempt from income tax.

In your case, you are an Australian resident in receipt of a country X government war disablement pension. Accordingly, your country X government war disablement pension is not assessable income for Australian income tax purposes under section 53-10 of the ITAA 1997.

As previously stated, the Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions. As you are an Australian resident in receipt of a country X government war disablement pension that is not taxable in country X, your pension is not taxable in Australia under the country X Convention.

There are no inconsistencies between the ITAA 1997 and the Agreements Act and section 53-10 of the ITAA 1997 will apply in the usual way to exempt your pension.

Your country X government war disablement pension is not assessable income for Australian income tax purposes.