Edited version of private advice

Authorisation Number: 1052333793983

Date of advice: 21 November 2024

Ruling

Subject: Assessable income - foreign pensions

Question 1

Are the pensions you receive from another country assessable in Australia?

Answer

Yes.

Question 2

Are you entitled to a tax offset for the tax paid in the other country on the pensions you receive from the other country?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a resident of Australia for tax purposes.

You receive monthly pensions from another country.

Tax is being paid in the other country on the pension benefits you receive.

From 19XX, you contributed funds to one of the pension plans.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 27H

Income Tax Assessment Act 1997 Division 770

Reasons for decision

Question 1

The consequences for you arise from the interaction between Australia's domestic tax laws and the tax treaty between Australia and the other country.

Under Australia's domestic law, Australian residents are assessable on their world-wide income. Specifically, annuities (including foreign pensions) are included in your assessable income by section 27H of the Income Tax Assessment Act 1936.

The pensions you receive from the other country being foreign pensions are included in your assessable income under this provision.

The effect of the tax treaty between Australia and the other country

The outcome under Australia's domestic law is modified if a limitation is placed on Australia by the tax treaty between Australia and the other country.

Article 18 of the tax treaty deals with the taxation of pensions and annuities arising from one country (the other country) for the benefit of a resident of another country (Australia), however, it does not limit Australia's taxing right. (It only imposes a limitation on the other country's taxing right).

Question 2

Division 770 of the Income Tax Assessment Act 1997 allows a foreign income tax offset if foreign source income that is assessable in Australia has been subject to income tax in another country. The amount of the foreign income tax offset is generally the lesser of the foreign tax and Australian tax on that assessable income.

Article 23 of the tax treaty operates in a similar way.

The effect of the foreign income tax offset is to ensure that Australia does not impose any more tax on you (after counting the foreign tax) than would apply to you if the foreign income was only assessable in Australia.

You are entitled to claim a foreign income tax offset because:

•         Article 18 of the tax treaty allows the other country to impose tax at a rate up to XX%, and

•         The other country has imposed income tax on the pensions you receive from the other country at the rate of XX%.