Edited version of private advice

Authorisation Number: 1051756064346

Date of advice: 22 September 2020

Ruling

Subject: International income

Question

Is your invalidity pension taxable in Australia?

Answer

No

Question

Is your invalidity pension non-assessable income in Australia?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances:

You are an Australian citizen and a citizen of Country A.

You worked in Australia for many years in various government positions.

You contributed to a superannuation scheme during your employment. You retired on medical grounds and were granted an invalidity pension recently. This invalidity pension is paid by the superannuation fund.

You left Australia recently and now live in Country A.

Recently, you made the decision to become a permanent resident of Country A and to not return to Australia. You have no intention of returning to Australia in the foreseeable future.

Your Domicile has reverted to Country A.

You will not be in Australia for more than 183 days in any year covered by the ruling.

You will be a tax resident of Country A for the period of the ruling

You do not own any property in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1936;

Income Tax Assessment Act 1997 subsection 6-5(2);

International Tax Agreements Act 1953 sections 4 and 5; and

Convention between the Government of Australia and the Government of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion. (The Convention).

Reasons for decision

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that 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, in determining liability to tax on the foreign source income of an Australian resident, it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreement.

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 Convention is listed in section 5 of the Agreements Act.

The Convention operates to avoid the double taxation of income received by residents of Australia and Country A.

Paragraph A of Article XX of the Convention states -

1. Subject to the provisions of paragraph B of Article XX, pensions, annuities and similar periodic remuneration, paid to a resident of a Contracting State shall be taxable only in that State.

Paragraph B of Article YY of the Convention states -

2. a) Notwithstanding the provisions of paragraph 1, pensions, annuities or lump sum retirement benefits paid by, or out of funds created by, a Contracting State or a political subdivision or a local authority of that State to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State.

b) However, a pension or annuity referred to in subparagraph (a) shall be taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.

Therefore, as per subparagraph 2(b) your pension is only taxable in Country A as you are a resident of, and a national of that country, which has the taxing rights to your pension.

As the income cannot be taxed in Australia it is non-assessable income.

Additional Comments

Whether you will need to lodge income returns in Australia in the future will depend on what, if any, income you have in Australia. If you are required to lodge a return the instructions will explain whether and where on the return your pension should be reported.

You should contact your pension provider to advise them that the pension is not assessable in Australia and that accordingly, they do not need to withhold PAYG from payments. They may wish to see a copy of this ruling.