Edited version of your private ruling

Authorisation Number: 1012520368561

Ruling

Subject: Assessability of foreign pension

Question and answer:

Is your foreign pension assessable in Australia?

Yes.

This ruling applies for the following period:

Year ended 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

You are an Australian resident for taxation purposes and have been for 25 years.

You began receiving a foreign pension in the 2012-13 financial year.

You declared the foreign pension in your 2012-13 tax return.

The pension is tax free in country X because you had already paid tax on this money when you earned it during your working life there.

The country X Government deducted after tax amounts from your salary and wage income and pooled the money for the purpose of providing your pension in the future.

The money is nearly impossible to get while you are in Australia.

The country X currency has no value; you cannot exchange the money to Australian dollars.

To get the pension and to be able to spend it you have to be in country X and this costs almost as much as the pension amount in airfares.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 27H

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 6-15

Income Tax Assessment Act 1997 Section 6-20

Income Tax Assessment Act 1997 Section 6-25

Income Tax Assessment Act 1997 Section 10-5

Income Tax Assessment Act 1997 Section 11-15

Reasons for decision

Assessable income

As an Australian resident taxpayer the assessable income you are to include in your tax returns every year should include all ordinary income you receive from all sources, including money received from overseas unless there is taxation legislation that determines the income is exempt and you do not need to declare it.

Ordinary income

Past court cases have defined what ordinary income is:

· it is earned as a result of work you have done

· it is received periodically

· it is expected

· it is relied upon

· it replaces income.  

It is not necessary for all of these characteristics to exist for money received to be ordinary income.

Pension payments are ordinary income because they are received periodically and are expected and relied upon.

Exempt income

An amount of ordinary income can be exempt from income tax only if a specific provision within taxation legislation or other Commonwealth law states that it is exempt from income tax.

There are no provisions within the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997 which exempt pension payments received by an Australian resident taxpayer which are being paid as a result of their employment.

Double tax agreements

Australia has double tax agreements with more than 40 countries worldwide. The main purpose of double tax agreements is to avoid double taxation as well as to prevent taxation evasion. In addition, these agreements often settle differences of interpretation and provide a system for consultation and resolution of disputes between the tax administrations of Australia and another country.

Most of Australia's double tax agreements discuss the taxation of pensions and annuities. Most commonly the right to tax pension and annuity income is given to the country of residence of the income recipient.

There is no double tax agreement between Australia and country X and therefore the assessability of the income you receive from country X is determined on the basis of Australian income tax law.

Your foreign pension is ordinary income and is not exempt from income tax.