Edited version of private advice

Authorisation Number: 1052045297290

Date of advice: 3 November 2022

Ruling

Subject: International income

Issue 1

Question 1

Is a Social Security benefit received from the Country A included in a taxpayer's assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No, a Social Security benefit received from the Country A is not included in a taxpayer's assessable income under section 6-5 of the ITAA 1997.

Issue 2

Question 2

Is a private annuity benefit received from the Country A included in a taxpayer's assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This private ruling applies for the following periods:

Year ended 20XX

Year ended 20XX

Year ending 20XX

Year ending 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an Australian resident for income tax purposes.

You are a permanent resident of Australia.

You are also a citizen of the Country A.

You were previously employed by a XXXX Government Agency.

As a consequence, you receive income via a social security pension.

This payment is paid directly into your Australian bank account.

In addition, you receive income from a private Country A based annuity pension scheme. The private pension scheme is set up under a company plan in the Country A.

The annuity is paid directly into an overseas bank account. No amounts have been withheld from the payment.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Convention between the Government of Australia and the Government of XXX for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income [1983] ATS 16

Reasons for decision

Question 1

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. However, agreements that Australia has with various countries under the International Tax Agreements Act 1953 (the Agreements Act) operate to prevent the double taxation of income.

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that both Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

Paragraph 18(2) of Schedule 2 of the Agreements Act provides that Social Security payments by the Country A to a resident of Australia shall only be taxed in the Conutry A.

The Social Security benefit received by the taxpayer is therefore not assessable income under section 6-5 of the ITAA 1997, but is subject to tax in the Country A. This is consistent with the view previously expressed and advised.

Question 2

Subsection 6-5(2) of the 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.

Assessable income consists of ordinary income and statutory income provided it is neither exempt nor non-assessable non-exempt income.

Private pension plans are 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. the Country A is listed in section 5 of the Agreements Act.

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

Except for government-service pensions to which Article 19 of the Convention applies, paragraph (1) of Article 18 provides that a pension paid in consideration of past employment shall be taxable only in the Country of residence of the recipient.

Article 18 of the Country A agreement considers the tax treatment of pensions, annuities, alimony and child support. The relevant paragraph in this case is paragraph 1 of article 18 of the Country A's agreement.

(1) 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.

Taxation Ruling IT 2542- Income tax: taxation position of United States non-government pensions further states:

'Except for government-service pensions to which Article 19 of the Convention applies, paragraph (1) of Article 18 provides that a pension paid in consideration of past employment shall be taxable only in the country of residence of the recipient'.

Consequently, your private pension payments in relation to past employment would be treated as taxable in Australia as per the DTA between Australia and the Country A as well as the Taxation Ruling IT 2542 regarding the ATO view.