Private ruling: Foreign source pension
Published: August 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer: | Is the foreign source pension received by your spouse assessable to you for income tax purposes? | No.

Relevant facts and circumstances: You are an Australia resident for income tax purposes. Your spouse is the recipient of a foreign pension (the pension). On 1 July 20XX, you and your spouse entered into an agreement in relation to your spouse's pension which stated that: · your spouse would assign to you the full beneficial monetary proceeds of the pension; · your spouse agreed that you were to have the benefit for your own personal use of all the proceeds derived from the pension; and · your spouse understood the nature of the agreement and had received the necessary legal advice in relation to the agreement. You included the pension income in your income tax return for the income tax year ended 30 June 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1936 Section 27H

Reasons for decision: Summary: Sections 6-5 and 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provide that the assessable income of an Australian resident includes their ordinary and statutory income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Pensions are included in assessable income under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936). Alienation of income occurs when an arrangement is made under which income that would otherwise be assessable to a taxpayer becomes income of a different taxpayer. One of the main areas with which alienation is associated is the transfer of rights to receive income. However, transfers of this type have faced difficulties in being recognised as legally effective as there is an important distinction between the alienation of income and the application of income. Generally speaking, the courts have found that attempts to alienate income have been ineffective when the attempted assignment was no more than an application and disposition of income which the assignor had derived or was deemed to have derived. In your case, your spouse is in receipt of a foreign pension which was earned by him and which he has the legal right to. He has entered into an agreement in which he assigned to you the full beneficial rights to his pension. Although your spouse has every right to apply the income from his pension for your benefit, this is a private arrangement which does not alter the fact that the legal right to the pension is his and the pension is derived by him. Your spouse has the right to the pension and the agreement he entered into constitutes an application of the income to you, not an effective assignment or alienation of that income You have not derived the pension and it is not assessable income to you under section 27H of the ITAA 1936. You should lodge an amendment to your 2013 income tax return removing the amount of the pension from your income.