Edited version of private advice

Authorisation Number: 1052316882510

Date of advice: 14 October 2024

Ruling

Subject: Assessable income

Question 1

Is the Country Z supported living portable payment assessable in Australia?

Answer 1

Yes.

Question 2

Are you entitled to claim a Foreign Income Tax Offset (FITO)?

Answer 2

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a resident of Australia for taxation purposes.

Your spouse is legally blind.

You receive a payment from the Country Z government for your spouse.

You received payments in the relevant income years.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-15

Income Tax Assessment Act 1997 section 6-20

Income Tax Assessment Act 1997 section 770-10

International Tax Agreements Act 1953 section 4

Reasons for decision

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (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.

Pension income is ordinary income assessable under subsection 6-5(2) of the ITAA 1997.

However, subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income, then it is not assessable income.

Section 6-20 of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law.

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 (DTA).

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 Z Agreement is listed in section 5 of the Agreements Act.

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

Article 18 of the agreement says:

Pensions

1. Pensions (including government pensions) and other similar periodic remuneration paid to a resident of a Contracting State shall be taxable only in that State. However, such income arising in the other Contracting State (other than payments of portable Country Z superannuation or portable veteran's pension or equivalent portable payments arising in Country Z) shall not be taxed in the first-mentioned State to the extent that such income would not be subject to tax in the other State if the recipient were a resident of that other state.

Australia has the sole taxing rights on the supported living portable payment you receive from Country Z as per Article 18 of the DTA as you are a resident of Australia for taxation purposes.

This payment is required to be declared in your Australian tax return at label 20L of the return.

Foreign Income Tax Offset

Subsection 770-10(1) of the ITAA 1997 provides that a person is entitled to a FITO for foreign tax paid in respect of an amount that is included in the person's assessable income in a year of income. It is not necessary that the payment of foreign income tax occurs in the claim year.

You are not eligible for the FITO on the Country Z payment as Australia has the taxing rights on the income and Country Z does not have the right to tax the payment in accordance with Article 18 of the DTA between Australia and Country Z.