Private ruling: International pensions
Date of advice: 21 December 2017
Published: May 2018
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the overseas country pension you receive assessable in Australia? | A1: Yes

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You are a citizen of Country A. You worked for the education department in Country A as a secondary school principal. You receive a Country A government pension which is not taxed in Country A.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | International Tax Agreements Act 1953

Reasons for decision: Summary: 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. 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 between Australia and Country A operates to avoid the double taxation of income received by residents of Australia and Country A. Article X of the Country A Agreement considers the tax treatment of pensions and annuities. It states: 1. A pension or an annuity, derived from sources within one of the Contracting States by an individual who is a resident of the other Contracting State, shall be exempt from tax in the first-mentioned Contracting State. 2. The term "annuity" means a stated sum payable periodically at stated times, during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money's worth. 3. This Article shall not apply to a pension paid to an individual by the Government of the Commonwealth or of any State of the Commonwealth or the Government of Country A in respect of services rendered in the discharge of Governmental functions. The term 'services rendered in the discharge of governmental functions' means those services rendered by an employee or office-holder in the completion or performance of any functions undertaken by government. Therefore according to paragraph 3, Article X does not apply in determining if your Country A pension is assessable income. Article Y of the Country A Agreement applies to remuneration other than pensions and therefore is not relevant to determining if your Country A pension is assessable income. As no article in the Country A Tax Agreement prevents your pension from being taxed in Australia, the pension you receive is considered ordinary assessable income under subsection 6-5(2) of the ITAA 1997 and is taxable in Australia.