Edited version of private advice

Authorisation Number: 1052313026858

Date of advice: 1 October 2024

Ruling

Subject: Undeducted purchase price

Question 1

Are you entitled to an undeducted purchase price (UPP) deductible amount in respect of your foreign pension?

Answer 1

Yes, your annual UPP deductible amount for the 20XX-XX income year is XXX

This ruling applies for the following period:

Year ending XXXX

The scheme commences on:

The scheme commences on XXXX

Relevant facts and circumstances

This private ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are different from these facts, this private ruling has no effect, and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

•                     You are a resident of Australia for income tax purposes.

•                     You were born on XXXX

•                     Your pension is paid by a scheme maintained by the government.

•                     You provided a letter stating your personal contributions for 20XX income year is $XXXX

•                     You provided a letter stating your personal contributions for 20XX income year is $XXXX

•                     Your pension commenced on XXXX

•                     You currently receive 100% of the pension and on your death, it reverts to your spouse.

•                     The residual capital value of the pension is nil.

•                     When this pension commenced you were XX years of age.

•                     Your pension is paid on a monthly basis.

Relevant legislative provisions:

Income Tax Assessment Act 1936 Former subsection 27A(1)

Income Tax Assessment Act 1936 section 27H

Income Tax Assessment Act 1936 subsection 27H(2)

Income Tax Assessment Act 1936 subsection 27H(3)

Income Tax Assessment Act 1936 subsection 27H(4)

We followed these ATO view documents

Taxation Ruling IT 2498

Taxation Ruling IT 2498A - Addendum

Taxation Ruling IT 2554

Other references

Taxation Determination TD 2006/17

Taxation Determination TD 2006/54

Taxation Determination TD 2006/72

Reasons for decision

The part of your annual pension or annuity income which represents a return to you of your personal contributions is free from tax. The tax-free portion is called the UPP deductible amount.

The definition of purchase price is contained in subsection 27H(4) of the Income Tax Assessment Act 1936. It states that 'purchase price' includes the contributions made by a person to any foreign superannuation fund to obtain a pension and so much of contributions considered reasonable by the Commissioner as having been paid by a person to a foreign superannuation fund to obtain superannuation benefits including a pension.

In recognition of the difficulties pensioners face in obtaining information relating to their contributions to the INPS, Taxation Ruling IT 2554 Income tax: Australia/Italy Double Taxation Agreement: Italian pensions derived by Australian residents allows for the following alternative formula to be used to calculate the UPP deductible amount:

(Contributive portion for calendar year + Contributive portion for previous calendar year) × 90% ÷ 2

It must be noted that the 'contributive portion' supplied on the Article 10 letters issued by INPS are based on calendar years. Therefore, to calculate the UPP deductible amount for each Australian income year, two years' statements are required. The 'contributive portion' (reduced by 10% to reflect the interest element in that component of the pension) is the annual exclusion amount.

Using the contributive portion supplied by the INPS and the above formular, your UPP deductible amount for the XXXX income year is $XXXX

Conclusion

As per the above determination, your annual UPP deductible amount for the XXXX income year is $XXXX.

Please note that the UPP deductible amount for the full financial year will remain the same provided the details relating to the UPP Determination remain unchanged.