Edited version of private advice

Authorisation Number:1052314195950

Date of advice: 16 October 2024

Ruling

Subject: Undeducted purchase price of foreign pension

Question

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

Answer

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

Your annual UPP deductible amount for the 20XX-XX and subsequent full income year is XXX

This private ruling applies for the following period:

30 June 20XX

The scheme commences on:

The scheme commences on 1 July 20XX

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.

Your pension is paid by XXX, a scheme maintained in XXX

You have provided a statement from the fund to assist the Commissioner in determining the amount of your personal contributions.

You have provided a letter from XXX stating your personal contributions are XXX

Your pension commenced on XXX and is payable for life.

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 the pension commenced you were XX years of age and your life expectancy factor was XXX

When the pension commenced your spouse was XX years of age and their life expectancy factor was XX

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)

Income Tax Assessment Act 1997 section 960-50

Income Tax Assessment (1936 Act) Regulation 2015 section 9

Income Tax Assessment (1997 Act) Regulations 2021 section 960-50.01

We followed these ATO view documents

Taxation Ruling IT 2498

Taxation Ruling IT 2498A - Addendum

Other references

Taxation Determination TD 2006/17

Taxation Determination TD 2006/54

Taxation Determination TD 2006/72

Important information to note

Income tax returns may be amended within two years from the date upon which the Commissioner gives notice of assessment. However, where assessments fall outside this period, you will need to lodge an objection and request an extension of time to lodge the objection.

The UPP deductible amount can only be included in your tax return if you have declared your pension income. When including these amounts, they should be translated to Australian currency using the same exchange rate. For more information about exchange rates go to our website ato.gov.au and enter 'QC 16583' in the search box on the top right of the page.

Reason 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.

It is calculated by dividing the UPP of your pension by either the term of the pension (if fixed), or a life expectancy factor - that applies to you or your spouse if they have a greater life expectancy - according to life expectancy statistics.

The Australian life tables are published by the Australian Government Actuary, and the life expectancy is taken from when the pension first became payable.

The annual UPP deductible amount is calculated using the following formula:

A × (B − C) ÷ D

A = relevant share of the pension payable to you

(if all the pension is payable to you then A = 1)

B = is the amount of the UPP of the pension, which in your case is XXX

C = is the residual capital value (if any), which in your case is nil.

D = is the relevant number, which in your case is XX

By putting your information into the above formula, your annual UPP deductible amount is XXX

Part year calculation

As your pension was paid for XXX days in the 20XX income year, a pro-rated amount of XXX applies for that year.

Conclusion

As per the above determination, your part year UPP deductible amount for the 20XX income year is XXX and your annual UPP deductible amount for the 20XX and subsequent full income year is XXX.

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 unchange