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Edited version of private advice
Authorisation Number: 1012653188819
Ruling
Subject: Assessability of foreign pension income
Question 1
Will your foreign Social Security pension income be assessable in Australia when you return to live here permanently?
Answer
No.
Question 2
Will your former foreign employment pension income be assessable in Australia when you return to live here permanently?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2016
The scheme commenced on
1 July 2015
Relevant facts and circumstances
You are a citizen of Australia.
You have lived in country X for many years.
You were employed in country X until you retired in recent years.
Your income in retirement is based on two sources:
a) a Social Security pension; and
b) a pension from your former employment.
You are required to pay income tax in country X on this income.
You wish to return to live permanently in Australia.
Your arguments and references
You state that your retirement income is based entirely on your career in country X.
You are required to pay income tax on this income in country X for the remainder of your life irrespective of where you live.
You cannot afford to pay income tax in both country X and Australia.
You have received written advice from the ATO which suggests your income will not be assessable in Australia under the double tax agreement between country X and Australia.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Double tax agreement between country X and Australia
Reasons for decision
Country X Social Security income
ATO Interpretative Decision 200X/382 explains A specific paragraph of the double tax agreement between country X and Australia (the DTA) provides that Social Security payments by country X to a resident of Australia shall only be taxed in country X.
The Social Security benefit you receive will therefore not be assessable in Australia but will remain subject to tax in country X.
Former employment pension income
An Article of the DTA explains that pensions paid from funds from country X to a citizen of country X shall be exempt from tax in Australia.
As you are a citizen of Australia and not a citizen of country X, the Article of the DTA does not apply to exempt the tax on this foreign pension in Australia and it falls under the guidance provided in another Article of the DTA.
In accordance with paragraph (1) of that other Article of the DTA, pensions and other similar remuneration paid to an individual who is a resident of Australia in consideration of past employment shall be taxable only in Australia.
Conclusion
Your Social Security income will be exempt from tax in Australia when you return to live here permanently.
When you move permanently to Australia you will need to advise your former employment pension institution of your change in residency so they will cease deducting tax from your income, as this income is taxable only in Australia.