Private ruling: Assessable foreign pension income
Date of advice: 2 February 2023
Published: 20 March 2023
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the monthly payments you receive from your Country X life insurance policy assessable for income tax purposes in the 20XX income year and in future income years? | A1: Yes.

Relevant facts and circumstances: You held a foreign life insurance policy which has now expired. You received monthly work disability pension payments as part of this policy. You hold an additional foreign life insurance policy. You received monthly work disability pension payments from 20XX-20XX as part of this policy and you will continue to receive these payments in future years.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | International Tax Agreements Act 1953 Section 4 | International Tax Agreements Act 1953 Section 5

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Pension payments are considered to be ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. In determining liability to Australian tax on foreign sourced income received by a resident taxpayer, it is necessary to consider not only the income tax laws but also any applicable Double Tax Agreement contained in the International Tax Agreements Act 1953 (the Agreements Act). Section 4 and 5 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. The Country X Agreement is contained within Section 5 of the Agreements Act. Article X of the Country X Agreement specifically deals with the taxation of pensions and annuities income. Article X(1) provides that, subject to Article X of the Country X Agreement, Australia has the sole taxing rights over pensions and annuities income paid to an individual who is a resident of Australia. Accordingly, the monthly payments you receive from your work disability pension from Country X are assessable in Australia under subsection 6-5(2) of the ITAA 1997.