Edited version of your written advice

Authorisation Number: 1051468551618

Date of advice: 20 December 2018

Ruling

Subject: Foreign pension

Question

Are your pension payments assessable income in Australia?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2018

The scheme commenced on

1 July 2017

Relevant facts

You are an Australian resident for tax purposes.

You were previously working in country A for many years.

After your retirement, you migrated to Australia.

The pension plan offered two options. You can either withdraw the accumulated funds at age 55, or be paid a monthly pension. You opted for the monthly pension.

The superannuation pension is fully exempt from tax in country A as you retired over the age of 55 and it is the only pension you receive.

You continue to receive the monthly pension payments.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10.

International Tax Agreements Act 1953 section 4.

Reasons for decision

The assessable income of an Australian resident includes ordinary income and statutory income derived from all sources, whether in or out of Australia (sections 6-5 and 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997)).

In determining liability to Australian tax of foreign sourced income received by a resident, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that the Acts are read as one.

The tax treaty between Australia and country A (the Agreement) operates to avoid the double taxation of income received.

The relevant article of the Agreement provides that any pension paid to you in respect of services rendered to country A shall be taxable in country A.

The relevant article goes on to say that ‘The provisions of paragraphs 1 and 2 shall not apply to remuneration or pensions in respect of services rendered in connection with any trade or business carried on by one of the Contracting states or a political subdivision or local authority thereof. In such a case, the provisions of Articles 14, 15 and 17 shall apply’.

In your case, the services rendered in country A, is not in connection with as a trade or business. Therefore, this part of the relevant article does not apply in your circumstances.

Although your pension is taxable in country A, there is nothing in the Agreement that precludes Australia from also taxing the pension. That is, the relevant article does not say that your pension is only taxable in country A.

This was confirmed by a Federal Court case, where it was held that the relevant article does not provide that country A alone is to have the power to tax the pensions, nor does it restrict or limit Australia from so doing.

This is also outlined in an Australian Taxation Office Interpretative Decision, where it states that the pension is assessable income under subsection 6-5(2) of the ITAA 1997.

It is acknowledge, that you personally rendered the services in country A and not your spouse, however this does not change the assessable nature of your pension. The pension is also assessable if the taxpayer themselves rendered the services.

As you are an Australian resident for taxation purposes, the pension income derived from country A is assessable income under subsection 6-5(2) of the ITAA 1997. Therefore you need to include your pension income on your Australian tax return.