ATO ID 2008/7: Assessability of UK War Widows supplementary pension
Date of decision: 29 October 2007
Year of income: Year ended 30 June 2004
Business line: Public Groups and International

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
Summary: 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.

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
Related ATO interpretative decisions: ATO ID 2008/6
Subject references: Exempt income Foreign pension Foreign pension income United Kingdom Veterans payments Widows pensions