Edited version of private advice

Authorisation Number: 1051927139483

Date of advice: 25 November 2021

Ruling

Subject: Foreign pension

Question 1

Will the offshore pension income from the Country A Pension Fund constitute ordinary income under section 6-5 of the Income Tax Assessment Act 1997?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for taxation purposes.

You are not a temporary resident for taxation purposes.

You migrated to Australia as a retiree in early 20XX.

You hold a permanent resident visa which allows to you live in Australia.

You did not have any employment, investment income and superannuation in Australia for the period early 20XX to mid-20XX.

You have offshore income such as interest, dividends, distributions from an investment trust and rental income.

You receive regular offshore pension payments from a Country A Pension Fund.

All interest, dividends and share profits remain within the Country A Pension Fund.

You have no intentions of taking any lump sum payments from the Country A Pension Fund.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(2)

International Tax Agreements Act 1953 Section 4

International Tax Agreements Act 1953 Section 5

International Tax Agreements Act 1953 Section 11F

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.

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. However, the note to section 5 of the Agreements Act states that some current agreements are given the force of law by other provisions of this Act, which is the case with the Agreement between the Government of Australia and the Government of Country A for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income (the Country A Agreement), which is listed in the Agreements Act and is also given the force of law under this section.

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

Article X of the Country A Agreement considers the tax treatment of Pensions and Annuities. The relevant paragraph says that any pension (other than a pension of the kind referred to in Article Y) or other similar payment or any annuity paid to a resident of Australia shall be taxable only in Australia.

Your Country A pension payments are taxable in Australia under Article X of the Country A Agreement and are therefore required to be declared in your Australian tax return.