Private ruling: Taxation of an overseas pension
Date of advice: 17 August 2017
Published: December 2017
Ruling period: Income year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is a person entitled to a deductible amount in respect of the undeducted purchase price (UPP) of your foreign pension? | A1: The Commissioner declines to rule | Q2: Is the medical injury retirement payment assessable in Australia? | A2: Yes

Relevant facts and circumstances: You received a medical injury retirement payment (the Pension) from Country A Retirement Scheme (the Retirement Scheme), which is established and managed in Country A. The Pension consists of an injury pension and an ill-health pension. The Pension is not taxed in the Country A. All of the Pension is payable to you. The Pension became payable after 1 July 1983. The Pension is payable for life and, in the event of your death, 50% reverts to your spouse. The Country A Retirement Scheme is not able to advise the exact amount of personal contributions you made to the scheme. Upon commencing the Pension, you received a lump sum payment. The Pension is paid on a monthly basis. You are a resident of Australia for taxation purposes

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) | Income Tax Assessment Act 1936 Subsection 27H(4) | Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Subsection 52-10(1A) | Income Tax Assessment Act 1997 Section 960-50 | Income Tax Regulations 1936 Regulation 9 | Income Tax Assessment Regulations 1997 Regulation 960-50.01 | International Tax Agreements Act 1953 Section 4 | International Tax Agreements Act 1953 Schedule 1 Article 17

Reasons for decision: Summary: The Commissioner declines to rule. | Summary: The Pension is assessable in Australia and must therefore be declared in your Australian income tax return. | Detailed Reasoning - Detailed reasoning: 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. Assessable income consists of ordinary income and statutory income provided it is neither exempt nor non-assessable non-exempt income. Pension income is ordinary income assessable under subsection 6-5(2) of the ITAA 1997. In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country A Agreement is listed in section 5 of the Agreements Act. The agreement operates to avoid the double taxation of income received by residents of Australia and Country A. Article 17 of the DTA between Australia and the Country A considers pensions and annuities. It says that pensions (including government pensions) and annuities paid to a resident of a Contracting State shall be taxable only in that State. In your case you are a resident of Australia for taxation purposes. The Pension is paid to you by Country A Retirement Fund. Therefore the Pension will be taxed in Australia under Article 17. The Pension payment must be declared in your Australian tax return.