Edited version of your private ruling

Authorisation Number: 1012593378582

Ruling

Subject: Deductible amount of the undeducted purchase price (UPP) of your foreign pension

Question

Are you entitled to a deductible amount in respect of the undeducted purchase price (UPP) of your foreign pension?

Answer

Yes.

The scheme commences on:

After 1 January 1999.

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 receive a pension from a retirement fund established and managed outside Australia.

• The international tax agreement between Australia and the country in which the retirement fund is established provides that the pension is taxable in Australia.

• Your assessable income includes your pension income.

• The pension became payable on or after 1 July 1983.

• The pension is payable for life and is not reversionary.

• All the pension is payable to you.

• You have an amount of contributions, other than employer contributions, paid to the purchase of the pension.

• The residual capital value of the pension is nil.

• Your pension is paid on a regular basis.

• Your pension is not indexed.

• Your pension was paid for part of the 2013-14 financial year.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 27A(1)

Income Tax Assessment Act 1936 Section 27H

Income Tax Assessment Act 1936 Subsection 27H(2)

Income Tax Assessment Act 1936 Subsection 27H(3)

Income Tax Assessment Act 1936 Subsection 27H(4)

Income Tax Assessment Act 1997 Section 960-50

Income Tax Regulations 1936 Regulation 9

Income Tax Assessment Regulations 1997 Regulation 960-50.01

Superannuation Industry (Supervision) Regulations 1994

Reasons for decision

Explanation

Please note that all references to 'pension' cover both pensions and annuities

Summary

You have an annual deductible amount that will apply for the 2014-15 financial year.

You have a part year deductible amount that will apply for the 2013-14 financial year.

How the annual year deductible amount is calculated

Taxation Ruling TR 93/13 Income Tax: undeducted purchase price of pensions from the British National Insurance Scheme states that recipients of a British National Insurance Scheme (BNIS) pension can claim an 8% deduction of the annual amount of the pension. This method is accepted by the Tax Office and generally results in the maximum deduction you are entitled to.

How the part year deductible amount is calculated

Paragraph 2 of Taxation Determination TD 2006/17 Income tax: is the deductible amount that is excluded from assessable income when a superannuation pension or annuity is paid reduced when the pension or annuity commences or finishes being paid to a taxpayer part-way through an income year? states that where a pension has commenced or finished during a financial year, the deductible amount should be determined under subsection 27H(3) of the ITAA 1936. The deductible amount in these circumstances is the amount that would be calculated under subsection 27H(2) of the ITAA 1936 apportioned in accordance with the number of days the pension was payable to you in that year.

Converting foreign currency to Australian currency

For the 2003-04 and subsequent financial years, subsection 960-50(1) of the Income Tax Assessment Act 1997 (ITAA 1997) requires an amount in a foreign currency to be translated into Australian currency. Subsection 960-50(4) of the ITAA 1997 further requires any foreign currency elements in a calculation to be translated before the final amount is worked out.

In accordance with the currency translation rules contained in section 960-50 of the ITAA 1997 and clarified in Taxation Determination TD 2006/54 Income tax: how does a taxpayer work out the amount to be included in assessable income under section 27H of the Income Tax Assessment Act 1936 for a superannuation pension or annuity that is payable in a foreign currency?, pensions received in foreign currency should be translated to Australian currency on the following basis:

1. if the amount is received at or before the time when it is derived - the amount is to be translated to Australian currency at the exchange rate applicable at the time of receipt; or

2. in any other case - the amount is to be translated to Australian currency at the exchange rate applicable when it is derived.

As a general rule, the deductible amount is translated to Australian currency using the same exchange rate applying to the pension.

Alternatively, regulation 960-50.01 of the Income Tax Assessment Regulations 1997 (ITAR 1997) and Schedule 2 to the ITAR 1997 allow pensions received in foreign currency and the deductible amount to be translated to Australian currency at the average exchange rate for the financial year. This is provided the conditions outlined in Schedule 2 to the ITAR 1997 are satisfied.

Where the pension is received as a series of payments over the course of the financial year, and provided the average exchange rate is considered a reasonable approximation of the exchange rates, the conditions outlined in Schedule 2 to the ITAR 1997 will be satisfied.

In your case, as your pension is paid as a series of payments over the course of the financial year, you may use the average exchange rate to translate your pension income and the deductible amount of your UPP.

The average exchange rates are available from our superannuation information line on 13 10 20 or visit our website at ato.gov.au/super

Other relevant comments

Please note that from 1 July 2007, the legislation changed in relation to superannuation pensions and benefits paid from complying superannuation funds. However, these changes do not affect any pensions paid from overseas funds which are not considered complying superannuation funds under section 42 of the Superannuation Industry (Supervision) Act 1993 as they are not resident funds.

You will need to include your total foreign pension income in your income tax return and claim your annual deductible amount as advised by your private ruling above.