ATO Interpretative Decision
ATO ID 2008/7
Income Tax
Assessability of UK War Widows supplementary pensionFOI status: may be released
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This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.
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If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Is the United Kingdom (UK) War Widows supplementary pension received by a taxpayer assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. The UK War Widows supplementary pension received by a taxpayer is not assessable income under subsection 6-5(2) of the ITAA 1997 as it is exempt income under section 53-20 of the ITAA 1997.
Facts
The taxpayer is a resident of Australia.
The taxpayer's spouse was a member of the UK armed forces who was discharged at the end of the Second World War.
The taxpayer's spouse has since died as a result of a condition contracted while a member of the armed forces.
The taxpayer is entitled to receive a War Widows pension and a War Widows supplementary pension from the UK War Pensions Agency.
The War Widows pension is paid to the spouses and children of members of the UK armed forces killed whilst serving in the armed forces or who died later as a result of injury sustained during that service.
The War Widows supplementary pension is linked to the War Widows pension entitlement and is payable to widows of UK servicemen whose service terminated before 31 March 1973.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income, it will be excluded from assessable income. Subsection 6-20(1) of the ITAA 1997 specifies 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.
Section 53-20 of the ITAA 1997 provides that payments made by the Government of the United Kingdom are exempt from tax in Australia if the payments are similar to payments made under the Veterans' Entitlements Act 1986 that are exempt under Subdivision 52-B of the ITAA 1997 or payments similar to payments that are made because of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 and are exempt under Subdivision 52-C of the ITAA 1997.
Section 52-65 of the ITAA 1997 contains a list of pensions or other payments made under the Veterans' Entitlements Act. Item 10.1 lists pensions for defence-caused death or incapacity as exempt.
In determining liability to Australian tax of foreign sourced income received by a resident, it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one.
Schedule 1 to the Agreements Act contains the tax treaty between Australia and the United Kingdom of Great Britain and Northern Ireland and the Notes to the agreement (the UK Convention). The UK Convention operates to avoid the double taxation of income received by Australian and UK residents.
Article 17(1) of the UK Convention provides that pensions (including government pensions) and annuities paid to a resident of Australia shall be taxable only in Australia.
The War Widows pension the taxpayer received from the UK is similar to the pension for defence-caused death or incapacity paid under the Veterans' Entitlements Act. The Australian pension is listed as an exempt payment in Subdivision 52-B of the ITAA 1997. Therefore, the UK War Widows pension is exempt from tax in Australia under section 53-20 of the ITAA 1997.
As the War Widows supplementary pension received by the taxpayer is an additional component of the UK War Widows pension, it is also an exempt payment under Subdivision 52-B of the ITAA 1997 and does not form part of the assessable income of the taxpayer under subsection 6-5(2) of the ITAA 1997.
Date of decision: 29 October 2007Year of income: Year ended 30 June 2004
Legislative References:
Income Tax Assessment Act 1997
subsection 6-5(2)
subsection 6-15(2)
subsection 6-20(1)
Subdivision 52-B
Subdivision 52-C
section 52-65
section 53-20
section 4
Schedule 1, Article 17(1) Veterans' Entitlement Act 1986
Veterans' Entitlement (Transitional Provisions and Consequential Amendments) Act 1986
Related ATO Interpretative Decisions
ATO ID 2008/6 ATO Interpretative Decisions overturned by this decision
ATO ID 2002/669
Keywords
Exempt income
Foreign pension
Foreign pension income
United Kingdom
Veterans payments Widows pensions
ISSN: 1445-2782