Edited version of private advice

Authorisation Number: 1052142100938

Date of advice: 13 July 2023

Ruling

Subject: International income

Question

Are you required to include the Social Security benefit payments you receive from the Country A in your assessable income for the years ended 30 June 2021 to 30 June 2025, pursuant to section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No, the Social Security benefit received from the Country A is not included in your assessable income under section 6-5 of the ITAA 1997 due to the operation of the Convention between Australia and the Country A (the Convention)./p>

This ruling applies for the following period:

1 July 2020 to 30 June 2025

The scheme commenced on:

1 July 2020

Relevant facts and circumstances

1.     From 19xx to 20yy, you were a resident of the Country A for tax purposes.

2.     Whilst residing in the Country A, you were employed by a Country A federal government agency and in the private sector. You paid into the Country A Social Security program during the time you resided and were employed in the Country A.

3.     On XXXX, you returned to Australia and have been an Australian resident for tax purposes since this time. Subsequent to your return to Australia, you have not contributed to Country A Social Security.

4.     As a result of your previous employment in the Country A, you receive Social Security payments from the Country A. Tax is withheld in the Country A from the Social Security payments made to you.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

International Tax Agreements Act 1953 section 4

Convention 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 [1983] Australian Treat Series 16

Reasons for decision

Assessable Income

5.     Under Division 6 of the ITAA 1997, assessable income consists of ordinary income and statutory income provided it is neither exempt income nor non-assessable non-exempt income.

6.     Subsection 6-5(1) of the ITAA 1997 provides that your assessable income includes income according to ordinary concepts, which is called ordinary income.

7.     Subsection 6-5(2) of the ITAA 1997 specifies that the assessable income of an Australian resident for tax purposes includes ordinary income derived directly or indirectly from all sources, regardless of whether it is derived within or outside of Australia, during the income year.

8.     In determining liability to tax in Australia, it is necessary to consider any applicable tax treaty contained in the International Tax Agreements Act 1953 (the Agreements Act). Australia's income tax treaties are given the force of law by the Agreements Act, which sets out the methods of dealing with international sources of income for taxation purposes in Australia. Section 4 of the Agreements Act incorporates the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 into the Agreements act so that all three Acts are read as one. The Agreements Act effectively overrides both the ITAA 1936 and the ITAA 1997 where there are inconsistent provisions (except in some limited situations not relevant for current purposes).

The Convention between Australia and the United States of America (the Convention)

9.     Article 1 of the Convention between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income as amended by the Country A protocol (No. 1)[1] (the Convention) provides that the Convention will apply to persons who are residents of either Australia or the Country A.

Residency

9.     Article 4 of the Convention defines when a person is deemed to be a resident of Australia or a resident of the Country A.

Article 18 - Pensions, annuities, alimony and child support

10.   le 18 of the Convention assigns taxing rights between the two countries, Australia and the Country A (the Contracting States), for pensions, annuities, alimony and child support. Article 18(2) relevantly provides:

Social security payments and other public pensions paid by one of the Contracting States to an individual who is a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State.

11.   fore, Article 18 of the Convention specifies that where social security payments are paid by the Country A to an Australian resident, these payments shall only be taxed in the Country A.

Application to your circumstances:

12.    XXXX, you have been an Australian resident and therefore the Convention applies to you. This ruling is on the assumption that you will be an Australian tax resident for the duration of the applicable ruling period.

13.   cordance with Article 18 of the Convention, the Social Security benefit you receive from the Country A shall only be taxed in the Country A.

14.   onvention effectively overrides the ITAA 1997 where there are inconsistent provisions. As there is a conflict between the Convention and the ITAA 1997, the Convention applies such that section 6-5 of the ITAA 1997 does not apply to you.

15.   Accordingly, the Social Security you receive will not assessable income under section 6-5 of the ITAA 1997.

[1] Country A protocol (No.1) as defined in section 3AAA of the Agreements Act.