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Edited version of private advice
Authorisation Number: 1012623648953
Ruling
Subject: Assessability of superannuation pension
Question and answer
Is the superannuation pension you receive from a foreign embassy in Australia assessable in Australia?
Yes.
This ruling applies for the following periods
Year ended 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2014
Year ending 30 June 2014
The scheme commences on
1 July 2012
Relevant facts and circumstances
You were employed by the country X embassy in Australia.
You are now retired and have been receiving a superannuation pension from the country X embassy for many years.
You received a PAYG payment summary from the country X embassy for the first time in the last financial year.
The PAYG payment summary contained the amount of your pension and showed that no tax was withheld from the pension.
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 Section 10-5
International Tax Agreements Act 1953 Section 4
International Tax Agreements Act 1953 Section 5
Reasons for decision
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 your case, you are receiving a superannuation pension from the country X embassy in Australia as a result of your previous employment with the embassy. As such, you are receiving a superannuation pension from a foreign government.
Therefore, your superannuation pension is assessable in Australia under section 27H of the ITAA as it is a pension paid from a foreign scheme for the payment of superannuation benefits.
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).
The double tax agreement with country X (country X agreement) is listed in section 5 of the Agreements Act. The country X agreement operates to avoid the double taxation of income received by residents of Australia and country X.
An article of the country X agreement relates to Government service and states that pensions paid to an individual in respect of services rendered in discharge of governmental functions to country X may be taxed in country X. The use of the word 'may' in this context means that country X may tax the pension but this does not prevent Australia from taxing the pension under its own taxation legislation.
Therefore, the country X agreement does not prevent Australia from taxing the foreign superannuation pension and it is included in your assessable income under section 27H of the ITAA 1936.
In the event of country X also taxing your pension, you should be entitled to an Australian foreign income tax offset which provides relief from double taxation.