ATO ID 2004/809: Assessability of UK Armed Forces pension received by an Australian resident on or after 1 July 2004
Date of decision: 4 June 2004
Year of income: Year ended 30 June 2005 Year ended 30 June 2006
Business line: Public Groups and International

Issue
Is a pension received by an Australian resident taxpayer from the United Kingdom (UK) Armed Forces Pensions Scheme assessable under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision
Yes. The pension received by the Australian resident taxpayer from the UK Armed Forces Pensions Scheme is assessable under section 27H of the ITAA 1936.

Facts
The taxpayer is a resident of Australia for income tax purposes. The taxpayer receives a pension from the UK Armed Forces Pensions Scheme.

Reasons for decision
Summary: 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. Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of an Australian resident includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) of the ITAA 1997). Section 10-5 of the ITAA 1997 lists the provisions about assessable income. The listed provisions include amounts in assessable income that are not ordinary income or which vary or replace the rules that would otherwise apply for certain kinds of ordinary income. Included in this list is section 27H of the ITAA 1936 which provides that annuities and pensions paid from a foreign superannuation fund or foreign pension scheme to provide superannuation benefits are included in assessable income. In determining liability to Australian tax, it is necessary to consider not only the income tax laws, but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that the Acts are read as one. Schedule 1 to the Agreements Act contains the double tax agreement between Australia and the United Kingdom of Great Britain and Northern Ireland (UK Convention) and 2003 United Kingdom Notes. Article 17 of the UK Convention provides that pensions paid to a resident of Australia shall be taxable only in Australia. Therefore, the pension received by the taxpayer from the UK Armed Forces Pensions Scheme is taxable only in Australia. As the taxpayer is a resident of Australia for income tax purposes, the pension income is included in the taxpayer's assessable income under section 27H of the ITAA 1936.

Legislative references: Income Tax Assessment Act 1936 section 27H
Related ATO interpretative decisions: ATO ID 2003/1077
Subject references: Double tax agreements Foreign income Foreign pension income United Kingdom