Private ruling: Assessability of foreign military pension
Date of advice: 17 July 2018
Published: September 2018
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 July 2015

Ruling: Q1: Is a foreign military retirement pension which is paid into a foreign bank and taxed by the foreign country subject to tax in Australia? | A1: No.

Relevant facts and circumstances: You are a citizen of a foreign country. While on active duty you received orders for exchange duty with the military in Australia. Upon completion of your tour duty you were requested to remain in Australia to teach in the military. You submitted your retirement application with the foreign military and your immigration application. You retired from the foreign military and became a resident of Australia for taxation purposes. You receive a foreign military pension which is deposited into a foreign bank account. The foreign country taxes the pension.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) Convention between the Government of Australia and the Government of XXX for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income Article 19.

Reasons for decision: Summary: Australian domestic taxation legislation explains that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from within or outside Australia during the income year. You are a resident of Australia and a citizen of a foreign country in receipt of a foreign military pension. Under Australian taxation legislation this income would ordinarily be taxable in Australia. However, the tax treaty between Australia and the foreign country overrides the domestic legislation so that if the treaty states that income is exempt from tax in Australia, you do not need to include it in your tax return. The tax treaty between Australia and the foreign country states that Government pensions paid by the foreign country to a citizen of that country are exempt from tax in Australia. Therefore, your foreign military pension, being a government pension, is not taxable in Australia. You do not need to include this income in your Australian tax return. Further, as no tax is payable on your foreign military pension in Australia, there is no deductible amount of undeducted purchase price for you to claim.