Edited version of private advice

Authorisation Number: 1052350942451

Date of advice: 17 January 2025

Ruling

Subject: Foreign pension income

Question 1

Is the pension income you receive from Country Z assessable in Australia?

Answer 1

Yes.

This ruling applies for the following periods:

DD MM YY

The scheme commenced on:

DD MM YY

Relevant facts and circumstances

You are a resident of Australia for tax purposes.

You were born in Country Z on DD MM YY.

From DD MM YY, you worked for a X years in Australia.

You moved to Country Z and commenced work there on DD MM YY.

You were granted Australian Citizenship on DD MM YY.

You subsequently lost your Country Z citizenship as Country Z did not allow dual citizenship at the time.

You regained your Country Z citizenship when the Country Z legislation was changed on DD MM YY.

You've been a dual citizen of Australia and Country Z since DD MM YY.

You returned to live permanently in Australia on DD MM YY.

Following your retirement, you receive pension payments from two Country Z pension agencies (old-age pension and employment related pension).

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

International Tax Agreements Act 1953

Reasons for decision

The assessable income of an Australian resident includes ordinary income from all sources during the income year, whether in or outside of Australia.

The tax treaty agreement between the Government of Australia and the Government of Country Z for the Avoidance of Double Taxation with respect to Taxes on Income and the Prevention of Fiscal Evasion applies to persons who are residents of one or both of the Contracting States.

Article 17(1) of the double tax agreement (DTA) between Australia and Country Z provides:

Subject to the provisions of paragraph 3, any pension or annuity paid to a resident of a Contracting State shall be taxable only in that State.

Article 17(3) of the DTA addresses the taxation of pensions:

Pensions paid by a Contracting State or a political subdivision, local authority or statutory authority thereof to any individual in respect of services rendered to that State or subdivision or authority and pensions paid and other payments made under the social security legislation of a Contracting State may be taxed in that State. The provisions of this paragraph shall apply only to individuals who are citizens or nationals of the Contracting State from which the payments are made.

Article 22 of the DTA addresses Relief from double taxation.

1. Subject to the provisions of the law of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside Australia (which shall not affect the general principle of this Article), Country Z tax paid under the law of Country Z and in accordance with this Agreement, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in Country Z shall be allowed as a credit against Australian tax payable in respect of that income.

In your case, you receive pension payments from two Country Z pension agencies. The payments are for your old-age pension and a pension relating to your former employment.

As this pension income is paid to you as an Australian resident, Article 17(1) of the Agreement provides that the pension payments may be taxed in Australia.

Further, Article 17(3) allows Country Z to tax any social security pensions or any pensions that relate to former government service that arise in Country Z.

In accordance with Article 22 of the DTA, double taxationis avoided by Australia allowing a tax credit against Australian tax for tax paid in Country Z.