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Edited version of your written advice
Authorisation Number: 1013040525481
Date of advice: 29 June 2016
Ruling
Subject: Assessability of foreign pension
Question and answer
Is the Surviving Spouse pension received by you from the Government in Country X assessable income in Australia?
No.
This ruling applies for the following periods:
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You are a resident of Australia for taxation purposes.
You receive a Surviving Spouse pension from an overseas country, which is non-taxable allowance that country.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(2)
Income Tax Assessment Act 1997 Subsection 52-10(1A)
International Tax Agreements Act 1953 Section 4
International Tax Agreements Act 1953 Schedule 1 Article 18
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.
Pension income is ordinary income assessable under subsection 6-5(2) of the ITAA 1997.
However, subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.
Section 6-20 of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law.
In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.
Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (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 overseas country agreement is listed in section 5 of the Agreements Act.
The agreement between Australia and the overseas country operates to avoid the double taxation of income received by residents of Australia and the overseas country.
An article of the relevant overseas agreement considers the tax treatment of pensions.
This article specifies that certain pensions that are not taxable in the paying country are also not taxable in Australia.
You are in receipt of a type of pension from the overseas country, which is a non-taxable payment allowance.
Your payment allowance is not assessable in Australia under the relevant article of the Double Tax Agreement between Australia and the overseas country.