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Edited version of private advice
Authorisation Number: 1051525396577
Date of advice: 31 May 2019
Ruling
Subject: International income
Question
Is your country Y military pension assessable in Australia?
Answer
No
This ruling applies for the following periods:
Year ending 30 June 20XX
Year ending 30 June 20XX
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commenced on:
1 July 20XX
Relevant facts and circumstances
You are a resident of Australia for taxation purposes.
You are a citizen of country Y.
You receive a military pension from country Y.
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 6(1).
Income tax Assessment Act 1997 Section 6-5.
Reasons for decision
Generally where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source.
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 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. Country Y Agreement is listed in section 5 of the Agreements Act.
The Country Y agreement operates to avoid the double taxation of income received by residents of Australia and Country Y.
Article XX (1) of Country Y DTA states:
Subject to the provisions of Article 19 (Governmental Remuneration), pensions and other similar remuneration paid to an individual who is a resident of one of the Contracting States in consideration of past employment shall be taxable only in that State.
As you are receiving a military pension, and the military is a governmental function (that is, it is something generally undertaken by government), Article 18(1) of Country Y Agreement refers us to Article 19 of the USA Agreement. Article 19 of the Country Y Agreement states that Country Y military pensions are exempt from tax in Australia.
Consequently, the Country Y military pension is not included in your assessable income in Australia and is therefore not assessable in Australia.