Edited version of private advice

Authorisation Number: 1052371795003

Date of advice: 18 March 2025

Ruling

Subject: Foreign pension income

Question

Are the payments you received from the retirement scheme exempt from income tax under Article XX of the Convention between the Government of Australia and the Government of Country A for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a citizen of Country A and worked in State A for several decades.

During your employment, your employer contributed retirement monies to a retirement plan.

The retirement plan is offered by public schools and certain charities.

You have been receiving payments from the retirement plan since before arriving in Australia on Date one, when you became a resident of Australia for tax purposes.

The payments have been taxed in Country A and you have also included them in your Australian income tax returns.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 27H

Income Tax Assessment Act 1997 section 6-5

International Tax Agreements Act 1953

Reasons for decision

The payments you receive from the foreign pension scheme are not exempt from Australian income tax under Article 19 of the Convention.

Detailed reasoning

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Foreign pension or annuity payments are included in assessable income as an annuity under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) or as ordinary income under subsection 6-5(2) of the ITAA 1997.

Article 18 of the Convention with Country A specifically deals with the taxation of pensions and annuities income.

Article 18 provides that, subject to Article 19, Australia has the sole taxing rights over pensions and annuities paid to an individual who is a resident of Australia.

However, another Article of the Convention operates to reserve to each country the right to tax pensions to which Article 18 applies derived by its own citizens as if the Convention had not entered into force.

As a result, both countries may tax a non-government pension paid by Country A to a Country A citizen resident in Australia.

Under Article 19 of the Convention regarding governmental remuneration, it states that:

'Wages, salaries, and similar remuneration, including pensions, paid from funds of one of the Contracting states, of a state or other political subdivision thereof or of an agency or authority of any of the foregoing for labor or personal services performed as an employee of any of the above in the discharge of governmental functions to a citizen of that State shall be exempt from tax by the other Contracting State'.

In the Convention with Country A, the term 'in the discharge of governmental functions', is restricted to core functions undertaken by a government and completed or performed by the relevant employee or office holder. For the purposes of the Convention, 'core' functions refer to those functions that are carried on solely by a government and activities that directly support the carrying out of those functions. In this context, examples include military service, diplomatic service and tax administration.

Application to your circumstances

Foreign pension or annuity payments are included in your assessable income as an annuity under section 27H of the ITAA 1936 or as ordinary income under subsection 6-5(2) of the ITAA 1997, subject to Article 19 of the DTA.

The amounts you have received from the pension plan do not meet the definition of wages, salaries and similar remuneration received in the discharge of governmental functions. Therefore, the amounts are not received in the discharge of governmental functions and are not exempt from Australian income tax under Article 19 of the Convention.