Private ruling: Deductible amount of undeducted purchase price (UPP) of a foreign pension or annuity
Date of advice: 8 November 2016
Published: February 2017

Ruling: Q1: Are you entitled to a deductible amount in respect of your foreign pension? | A1: Yes

Relevant facts and circumstances: ● You are resident of Australia for income tax purposes ● You have provided statement from the fund to assist the Commissioner in determining the amount of your personal contributions ● You currently receive 100% of the pension ● The residual capital value of the pension is nil. ● Your pension is paid on a monthly basis.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 27H | Income Tax Assessment Act 1936 subsection 27H(2) | Income Tax Assessment Act 1936 subsection 27H(3) Other references: | Taxation Determination TD 2006/17 | Taxation Determination TD 2006/54 | Important information to note | The deductible amount can only be included in your tax return if you have declared your pension income. When including these amounts, they should be translated to Australian currency using the same exchange rate. More information about exchange rates is available from our website by entering 'QC 16583' in the search box on the top right of the page.

Reasons for decision: Summary: The part of your annual pension or annuity income which represents a return to you of your personal contributions is free from tax. The tax-free portion is called the deductible amount. It is calculated by dividing the UPP of your pension by either the term of the pension (if fixed), or a life expectancy factor - that applies to you or your spouse if they have a greater life expectancy - according to life expectancy statistics. The Australian life tables are published by a relevant government organisation, and the life expectancy is taken from when the pension first became payable. The annual deductible amount is calculated using the following formula: A (B - C) D A = relevant share of the pension payable to you (if all the pension is payable to you then A = 1) B = is the amount of the UPP of the pension C = is the residual capital value (if any) | Detailed Reasoning - Relevant facts and circumstances: ● You are resident of Australia for income tax purposes ● You have provided statement from the fund to assist the Commissioner in determining the amount of your personal contributions ● You currently receive 100% of the pension ● The residual capital value of the pension is nil. ● Your pension is paid on a monthly basis. | Detailed Reasoning - Relevant legislative provisions: Income Tax Assessment Act 1936 section 27H Income Tax Assessment Act 1936 subsection 27H(2) Income Tax Assessment Act 1936 subsection 27H(3) | Detailed Reasoning - Other references:: Taxation Determination TD 2006/17 Taxation Determination TD 2006/54 | Detailed Reasoning - Important information to note: The deductible amount can only be included in your tax return if you have declared your pension income. When including these amounts, they should be translated to Australian currency using the same exchange rate. More information about exchange rates is available from our website by entering 'QC 16583' in the search box on the top right of the page.