Private ruling: Assessability of foreign income
Published: April 2014
Ruling period: Year ended 30 June 2103
Date scheme commenced: 1 July 2012

Ruling: Question and answer | Is the income you receive from your ex-spouse's Country X pension assessable income in Australia? | Yes.

Relevant facts and circumstances: Under the terms of your divorce settlement, you receive a sum of money per month directly from your ex-spouse's Country X pension. You were unaware at the time of agreeing to the terms of the divorce settlement that this income may be assessable. You do not receive any other income.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5. | Income Tax Assessment Act 1997 Section 6-10. | International Tax Agreements Act 1953 Section 4. | International Tax Agreements Act 1953 Section 5.

Reasons for decision: Summary: Section 6-5 and section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a taxpayer includes ordinary and statutory income derived directly and indirectly from all sources during the income year. Ordinary income has generally been held to include three categories, namely income from rendering personal services, income from property and income from carrying on a business. Other characteristics of income that have evolved from case law include receipts that: • are earned • are expected • are relied upon • have an element of periodicity, recurrence or regularity In your case, you receive a sum of money each month directly from your ex-spouse's Country X pension as part of the terms of your divorce settlement. These payments retain the characteristics of income as they are expected, relied upon and are have the element of recurrence or regularity and are fully assessable as ordinary income. 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 X agreement is listed in section 5 of the Agreements Act. The Country X agreement is located on the Austlii website (www.austlii.edu.au) in the Australian Treaties Series database. Article 18 of the Country X agreement provides that pensions paid to a resident of Australia shall be taxable only in Australia. Therefore, you will need to include these payments in your income tax return. Although we acknowledge that you may have been unaware at the time of agreeing to the terms of your divorce settlement that this income would be assessable to you, the Commissioner has no discretion to grant you an exemption from the law where the law directs that the income is assessable.