ATO ID 2004/298: Assessability of an Australian government service pension received by a US resident who is an Australian citizen
Date of decision: 22 December 2003
Year of income: Year ended 30 June 2003
Business line: Public Groups and International

Issue
Is the Australian government service pension received by a United States (US) resident taxpayer who is an Australian citizen, assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision
Yes. The Australian government service pension received by the US resident taxpayer is assessable under subsection 6-5(3) of the ITAA 1997 as Australia has sole taxing rights over a government service pension paid to an Australian citizen who is a resident of the US.

Facts
The taxpayer is a non-resident of Australia for taxation purposes. The taxpayer is a resident of the US for taxation purposes. The taxpayer receives a government service pension from Comsuper. The taxpayer is an Australian citizen. The taxpayer is not currently a US citizen.

Reasons for decision
Summary: Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident includes all ordinary income derived from all Australian sources. Pension payments are ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997. In determining liability to Australian tax on Australian sourced income received by a non-resident, 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 (the Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. Schedule 2 to the Agreements Act contains the double tax convention between Australia and the US (the US Convention). Schedule 2A to the Agreements Act contains the United States Protocol (the US Protocol). The US Convention and the US Protocol operate to avoid the double taxation of income received by Australian and US residents. Article 18 of the US Convention specifically deals with the taxation of pensions and annuities income. This Article provides that, subject to Article 19 of the US Convention, the US has the sole taxing rights over pensions and annuities income paid to an individual who is a resident of the US. Article 19 of the US Convention provides that wages, salaries and similar remuneration, including pensions, paid from the funds of the Australian government for labour or personal services performed as an employee in the discharge of governmental functions to an Australian citizen, shall be taxable only in Australia. Therefore, the Comsuper pension that the taxpayer receives will be assessable under subsection 6-5(3) of the ITAA 1997.

Legislative references: Income Tax Assessment Act 1997 subsection 6-5(3)
Subject references: Annuities & superannuation pensions Allocated annuities and pensions Foreign income Double tax agreements Residence in Australia Residence of individuals Non resident individuals Resident/residency Superannuation pension income United States