Edited version of your private ruling

Authorisation Number: 1012497513692

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Ruling

Subject: International pension

Questions and answers:

1. Is the foreign government pension that is paid to you included in your assessable income under the Income Tax Assessment Act 1936 (ITAA 1936)?

No.

2. Is your foreign government pension target foreign income under the ITAA 1936?

Yes.

This ruling applies for the following period:

Year ended 30 June 2013.

The scheme commenced on:

1 July 2012

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 are a permanent resident of Australia.

You are not an Australian citizen.

You have resided in Australia for a period of time on a permanent visa.

You are an Australian resident for tax purposes.

You have lodged your personal income tax return for the previous financial year financial year.

You have been receiving a foreign government pension since your retirement from the foreign government services in 2011.

There is a double tax agreement between Australia and this country.

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)

International Tax Agreements Act 1953

Reasons for decision

Assessability of foreign source pension

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

In determining liability to Australian tax on foreign source income, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (the Agreements Act).

Schedule 11 of the Agreements Act contains the tax treaty between Australia and other countries. This Agreement operates to avoid the double taxation of income received by Australian and foreign residents.

The Agreement states that any pension paid by the foreign government to an individual for services provided to that state shall only be taxable in that country. The only exception of the Agreement is where the individual is a resident and citizen of only Australia, in which case a foreign government pension would only be taxable in Australia.

As you are a permanent resident of Australia for tax purposes the foreign government pension that you have been receiving since your retirement is foreign income. The Agreements Act operates to avoid the double taxation of income received from Australian and foreign residents.

As such your foreign government pension is not reported as assessable income but as target foreign income in your income tax return.

Foreign income that is exempt from Australian tax may still be taken into account to work out the amount of tax you have to pay on your other income.

Target foreign income

We use income tests to work out whether you:

· can claim certain tax offsets and the amount you are entitled to receive

· can receive some government benefits or concessions

· are entitled to a rebate for your private health insurance

· must pay Medicare levy surcharge or have a HELP or SFSS repayment liability

· must pay tax

We may also pass this information to other government agencies, such as the Department of Human Services, to ensure you are receiving your correct entitlement to government benefits. It will also be used to determine any child support payments.

Target foreign income is:

· any income earned, derived or received from sources outside Australia

· a periodical payment by way of gifts or allowances from a source outside Australia

· a periodical benefit by way of gifts or allowances from a source outside Australia

provided that the amount has neither been included in your taxable income, nor received in the form of a fringe benefit.

Target foreign income is reported in the income tests section at label IT4 on your income tax return.

In your case, the foreign pension you received is target foreign income because it is income that is earned, derived or received from sources outside Australia and has not been included in your taxable income, nor received in the form of a fringe benefit.

Therefore, your foreign pension must be reported at label IT4 of your income tax return.