ATO ID 2003/293: Assessability of foreign pension: restricted use of funds
Date of decision: 18 February 2003
Year of income: Year ended 30 June 2002
Business line: Small Business/Individual Taxpayers

Issue
Is the taxpayer assessable under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) on foreign superannuation pension income where they cannot use the funds outside of that foreign country?

Decision
Yes. The taxpayer is assessable under section 27H of the ITAA 1936 on foreign superannuation pension income where they cannot use the funds outside of that foreign country as the income has been derived by the taxpayer.

Facts
The taxpayer is an Australian resident for tax purposes. The taxpayer receives a superannuation pension from a foreign country. This pension is paid into a bank account held by the taxpayer in the foreign country. The taxpayer is able to use the funds within the foreign country but is not able to transfer or use those funds outside of that foreign country. Australia does not have a double tax agreement with the foreign country.

Reasons for decision
Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer 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 those other provisions about assessable income. Included in this list is section 27H of the ITAA 1936 which provides that annuities and superannuation pensions are included in assessable income. An amount paid as a superannuation pension would form part of assessable income under section 27H of the ITAA 1936. The issue is however whether the taxpayer has derived that income. Whether a taxpayer is assessable on income where the usage of that income has certain restrictions placed on it was considered by the High Court in Blankfield v. Federal Commissioner of Taxation (1972) 127 CLR 610; 72 ATC 4177; (1972) 3 ATR 258 ( Blankfield's Case ). In that case a former South African resident who took up residence in Australia was, because of South African restrictions placed on the export of currency and assets, unable to have remitted to him certain credit balances in his bank accounts and dividends and interest from his investments in South Africa. The court in Blankfield's Case decided that the dividends and interest amounts had been paid to the taxpayer at the time they were credited to his South African accounts. His title to those amounts was unaffected by his inability to deal with those amounts as a result of the South African restrictions. He had derived the income and therefore it formed part of his assessable income. The pension amounts have been credited to the taxpayer's bank account in the foreign country. The taxpayer's title to those amounts is not affected by the restrictions placed on their use by the foreign country. Therefore, the pension income has been derived by the taxpayer and forms part of their assessable income for taxation purposes. Accordingly, the taxpayer is assessable under section 27H of the ITAA 1936 on the foreign superannuation pension income.

Legislative references: Income Tax Assessment Act 1936 section 27H
Case references: Blankfield v. Federal Commissioner of Taxation (1972) 127 CLR 610 72 ATC 4177 (1972) 3 ATR 258
Subject references: Foreign pension income Derived