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Edited version of private advice
Authorisation Number: 1052206403023
Date of advice: 20 December 2023
Ruling
Subject: Pension income
Question 1
Is your annuity a pension under Article 18 of the Country Z Double Tax Agreement (DTA)?
Answer
Yes. The term 'pension' is not defined in the Country Z Convention.
The Country Z Convention provides that any term not defined in the convention is to have the meaning it has under the domestic tax law of the country applying the convention.
Taxation determination TD 93/151 provides at paragraph 1 that a pension is defined in the Macquarie Dictionary as "1. a fixed, periodical payment made in consideration of past services, injury or loss sustained, merit, poverty etc. 2. an allowance or annuity." The meaning of the term "pension" was considered by Hill J. in the Federal Court in Tubemakers of Aust Ltd v FC of T 93 ATC 4207. His Honour concluded that the essential characteristic of a pension is only that there be periodical payments.
In your case, your annuity meets the essential characteristic of a pension as per Hill J. in the Tubemakers Case in that they are periodical payments and therefore the DTA will determine the tax treatment of the payment.
Question 2
Is your annuity other similar periodic renumeration under the Country Z DTA?
Answer
Not applicable
Question 3
Does the Country Z DTA prevent the annuity from giving rise to any assessable income for you in Australia?
Answer
Yes. The agreement between Australia and Country Z operates to avoid the double taxation of income received by residents of Australia and Country Z.
The DTA between Australia and Country Z considers pensions and annuities. It states that pensions (including government pensions) and annuities paid to a resident of a Contracting State shall be taxable only in that State.
In your case, as you are a resident of Country Z your pension is not assessable in Australia.
This ruling applies for the following period:
Year ending 30 June 20YY
The scheme commenced on:
1 July 20YY
Relevant facts and circumstances
You are a resident of Country Z for taxation purposes.
You are not a resident of Australia.
You have been a resident of Country Z for a number of years.
Recently you took out a policy.
You are the legal and beneficial of the annuity.
The periodic payments that issue to you under the terms of the policy will be redirected to your spouse as part of a divorce arrangement.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 6-5