Edited version of your written advice

Authorisation Number: 1012754916484

Ruling

Subject: Foreign pension income

Questions and answers:

1. Is your Country A State Pension assessable income in Australia?

Yes

2. Is your Country A Teachers pension assessable income in Australia?

Yes.

3. Is your Country A Teachers Tax Free Lump Sum payment assessable income in Australia?

Yes

4. Is your Country A Teachers Pension paid in arrears assessable income in Australia?

Yes

This ruling applies for the following periods:

Year ended 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts:

You received a Country A State Pension during the 2013-14 financial year.

You received a Country A Teachers Pension during the 2013-14 financial year.

You received a Country A Teachers Tax Free Lump Sum payment which was not allowed to be converted to the Teachers Pension.

You received a Country A Teachers Pension paid in arrears.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1936 Section 27H

Income Tax Assessment Act 1936 Section 159ZR

International Tax Agreements Act 1953 Section 4

International Tax Agreements Act 1953 Section 5

Reasons for decision

Assessability of back payment of pension

Under section 6-5 (Income Tax Assessment Act 1997 (ITAA 1997)) your assessable income, as resident of Australia, must include income derived from all sources, whether in or out of Australia, during the income year. Section 27H (Income Tax Assessment Act 1936 (ITAA 1936)) provides for assessable income to include annuities and superannuation pensions.

As you are in receipt of a Country A State Pension and Country A Teacher's Pension the provisions of the International Tax Agreements Act 1953 must be considered and have effect notwithstanding anything inconsistent with those provisions in the Act.

Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the ITAA 1936 and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law.

The Country A agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. The Country A agreement operates to avoid the double taxation of income received by residents of Australia and Country A.

The Country A agreement states that:

Pensions (including government pensions) and annuities paid to a resident of Contracting State shall be taxable only in that State.

This means that, as you are a resident of Australia, the pension you are receiving from Country A is exempt from tax in the Country A and is only taxable in Australia. As your Country A pension must be included in your assessable income for Australian tax purposes the lump sum payment of your Country A Teacher's Pension must also be included as assessable income.

The lump sum payment must be declared in your Income Tax Return of the year in which this amount was received, that is, 2013-14. However, you may be entitled to a lump sum in arrears tax offset in relation to this amount.

Lump sum in arrears tax offset

The lump sum that is eligible for a lump sum in arrears rebate is the amount that accrued more than a year before you received it, according to section 159ZR of the Income Tax Assessment Act 1936 (ITAA 1936). The part of the lump sum that accrued less than a year before receipt is assessable as ordinary income in the year in which your receive it. In your situation you received the back payment of Country A pension which relates to the 2012-13 income year.

To enable the ATO to calculate the lump sum in arrears tax offset you should include the following information when you lodge your Australian tax return (or amendment request) -

• The total amount of the lump sum payment in arrears (LSPIA)

• A breakdown of the amounts attributable to each income year.

• If you have a deductible amount of an undeducted purchase price (UPP), provide this amount (if known).

Where an income tax return has not been lodged for the two most recent years to which the payment relates, provide details of the taxable income, (including the lump sum payment in arrears), you would have included if a tax return had been lodged.