Edited version of private advice

Authorisation Number: 1052329903726

Date of advice: 13 November 2024

Ruling

Subject: UPP deductible amount for foreign pension

Question

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

Answer

Yes.

This private ruling applies for the following period:

For the year ended 30 June 20XX

The scheme commences on:

The scheme commences on 1 July 20XX

Relevant facts and circumstances

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 copy of your XXX from the fund to assist the Commissioner in determining the amount of your personal contributions.

Your pension commenced on XXX and is payable for life.

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

The residual capital value of the pension is XX.

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

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

Your pension is paid on XX 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

Reason for Decision

Summary:

You are entitled to UPP deductible amount. Your annual UPP deductible amount for the 20XX income year is XX. Your part year UPP deductible amount for the 20XX income year is XX.

Detailed reasoning

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 XX.

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 XX.

Part year calculation

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

Conclusion

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

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.