Private ruling: U ndeducted purchase price of a foreign pension
Date of advice: 14 April 2023
Published: 29 May 2023
Ruling period: 30 June 20XX | 30 June 20XX | 30 June 20XX
Date scheme commenced: 12 March 20XX

Ruling: Q1: Are you entitled to an undeducted purchase price (UPP) deductible amount in respect of your foreign annuity? | A1: Yes, the deductible amount has been calculated in accordance with subsection 27H(2) of the Income Tax Assessment Act 1936.

Relevant facts and circumstances: You are a resident of Australia for income tax purposes. Your annuity is paid by the XXXXX, a retirement fund outside Australia. You have provided a letter from retirement fund confirming the purchase amount of the annuity. Your annuity commenced on the provided date and is not payable for a fixed term. The residual capital value of the pension is nil. When the annuity commenced you were XX years of age and your life expectancy factor was XX.XX. Your pension is paid on a yearly basis. You may take a cash lump sum if the annuity is below a certain value

Relevant legislative provisions: Income Tax Assessment Act 1936 Former subsection 27A(1) | Income Tax Assessment Act 1936 Section 27H | Income Tax Assessment Act 1936 Subsection 27H(2) | Income Tax Assessment Act 1936 Subsection 27H(4) | Income Tax Assessment Act 1997 Section 960-50 | Income Tax Assessment (1936 Act) Regulation 2015 Section 9 | Income Tax Assessment (1997 Act) Regulations 2021 Section 960-50.01

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 UPP 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 the Australian Government Actuary, and the life expectancy is taken from when the pension first became payable. The annual UPP 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), which in your case is nil D = is the relevant number, which in your case is XX.XX. By putting your information into the above formula, your part year and annual UPP deductible amounts had been determined.