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Edited version of your private ruling
Authorisation Number: 1012549056524
Ruling
Subject: Assessability of deferred pension lump sum
Question 1
Should the lump sum payments received by each of you be included in your 2012/13 assessable income?
Answer
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 Australian residents for taxation purposes.
As you deferred claiming your Country X State Pensions and you chose to receive lump sums, you became entitled to gross lump sum payments representing your State Pensions deferred, plus interest.
The Country X Pension Service deducted income tax from one lump sum.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Subsection 52-10(1A)
International Agreements Act 1953 Section 4
International Tax Agreements Act 1953 Sch-1 Art-17
Reasons for decision
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) explains that the assessable income of an Australian resident taxpayer includes ordinary income received directly or indirectly from all sources, whether in or out of Australia, during a financial year.
Pension income falls within ordinary income and is assessable under the legislation. However, as you are aware, Australian sourced pension bonus payments are specifically treated as exempt from income tax under the provisions of Division 52 of the ITAA 1997.
Subdivision 52-A examines exempt payments made under the Social Security Act 1991 and subsection 52-10(1A) specifies both the pension bonus and pension bonus bereavement payments made under Part 2.2A of the Social Security Act 1991 are exempt from income tax.
Your deferred Country X state pension lump sums are not payments made under the Social Security Act 1991. Therefore, subsection 52-10(1A) of the ITAA 1997 does not apply to make them exempt.
In determining liability to Australian tax on foreign sourced income it is necessary to consider not only the Australian income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (the Agreements Act).
The agreement between Australia and Country X (the agreement) is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database.
The agreement operates to avoid the double taxation of income received by residents of Australia and Country X and explains that any pension (including government pensions) and annuities paid to an Australian resident shall be taxable only in Australia.
Conclusion
An amount received as a lump sum representing deferred pension is ordinary income and forms part of your assessable income in the year it is received. Accordingly, as you are Australian residents your assessable income will include your deferred pension income from Country X under subsection 6-5(2) of the ITAA 1997.
With regard to the tax that has been withheld by the Country X Pension Service from one of the lump sums, you should make contact with Country X taxation authorities for advice on seeking a refund.