Edited version of private advice

Authorisation Number: 1051648490134

Date of advice: 19 March 2020

Ruling

Subject: Foreign pension

Question 1

Is the Country Y disability payment you receive assessable in Australia?

Answer

Yes

Question 2

Is the disability payment received from the Country Y required to be declared in past Australian tax returns?

Answer

Yes

Question 3

Are you able to claim a Foreign Income Tax Offset for the tax paid in the Country Y on the disability payment?

Answer

No

Question 4

Are you eligible for the Seniors and Pensioners Tax Offset?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2019

The scheme commenced on:

1 July 2018

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

You are not a resident of the Country Y for taxation purposes.

You receive a disability payment paid to you by the Country Y government from their Department of Social Services.

This payment is taxed in the Country Y from the 2019 income year.

You receive payments from the Country Z Government.

You receive a Centrelink Disability Support Pension which is tax free in Australia.

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 Country Y Agreement is listed in section 5 of the Agreements Act.

The agreement between Australia and the Country Y operates to avoid the double taxation of income received by residents of Australia and the Country Y.

Article XX of the Country Y agreement considers the tax treatment of pensions and annuities.

(1) Pensions, including pensions provided under the provisions of a public social security system, but not including pensions to which Article 19 applies, paid to a resident of one of the States, and annuities so paid, shall be taxable only in that State.

Article 19 concerns pensions paid to individuals in respect of services rendered in the discharge of governmental functions to one of the States or to a political sub-division of one of the States or to a local authority of one of the States. This Article is not relevant on the facts.

This means Australia has the sole taxing rights on the disability payment received from the country Y as you are a resident of Australia for taxation purposes and you are not a resident of the Country Y for taxation purposes.

As the pension is assessable income and not made exempt or non-assessable income it must be included in your tax return as assessable income from the date you became a resident of Australia for taxation purposes and commenced receiving the disability payment.

Foreign Income Tax Offset

Subsection 770-10(1) of the ITAA 1997 provides that a person is entitled to a FITO for foreign tax paid in respect of an amount that is included in the person's assessable income in a year of income. It is not necessary that the payment of foreign income tax actually occurs in the claim year.

You are not eligible for the FITO on the Country Y disability payment as Australia has the taxing rights on the income and the Country Y does not have the right to tax the payment in accordance with Article XX of the DTA between Australia and the Country Y.

Seniors and Pensioner Tax Offset (SAPTO)

You may be eligible to claim the seniors and pensioners tax offset only if you meet both of the following conditions:

Condition 1:

You meet this condition if any of the following applied to you in the financial year ended 30 June 2016.

A.    You showed at item 6 on your return an Australian Government pension or allowance from Centrelink, or a pension, allowance or benefit from the Department of Veterans' Affairs (DVA).

B.    You satisfied the Centrelink age pension age requirement and were eligible for an Australian Government age pension during the financial year ended 30 June 2016, but did not receive it because you did not make a claim or because of the application of the income test or the assets test, and you satisfy one of the following:

·         you have been an Australian resident for age-pension purposes for either 10 continuous years or for more than 10 years of which five years were continuous

·         you have a qualifying residence exemption (because you arrived in Australia as a refugee or under a special humanitarian program)

·         you are a woman who was widowed in Australia (at a time when both you and your late partner were Australian residents), you have made a claim for the age pension and you had two years residence immediately before your claim

·         you received a widow B pension, widow allowance, mature age allowance or partner allowance immediately before turning age-pension age

·         You would qualify under an international social security agreement.

C.   You satisfied the veteran pension age test and were eligible for a pension; allowance or benefit from Veterans' Affairs during the financial year ended 30 June 2016, but did not receive it because you did not make a claim or because of the application of the income test or the assets test, and you satisfy either of the following:

·         you are a veteran with eligible war service, or

·         You are a Commonwealth veteran, allied veteran or allied mariner with qualifying service.

Condition 2:

You meet this condition if any of the following applied to you in the financial year ended 30 June 2016.

·         You did not have a spouse, and your rebate income was less than $50,119

·         You had a spouse, and the combined rebate income of you and your spouse was less than $83,580

·         At any time during the year you and your spouse had to live apart due to illness or because one of you was in a nursing home, and the combined rebate income of you and your spouse was less than $95,198.

Combined rebate income includes an amount in respect of which a trustee of a trust estate is liable to be assessed (and pay tax) under section 98 of the ITAA 1936.

You are not eligible for the SAPTO as your Centrelink disability Support Pension is tax free and is not required to be declared at item 6 of the tax return as per the eligibility requirements set out in condition 1.