Private ruling: Deductible amount of the undeducted purchase price of your foreign pension
Date of advice: 1 July 2015
Published: July 2015
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: On or after 1 July 1983

Ruling: Q1: Are you entitled to a deductible amount in respect of your foreign pension? | A1: Yes.

Relevant facts and circumstances: You are resident of Australia for income tax purposes. Your pension is paid by a scheme maintained outside Australia. Your pension commenced on or after 1 July 1983 and is payable for life. You currently receive 100% of the pension and on your death it reverts to your spouse. The residual capital value of the pension is nil. Your pension is paid on a monthly basis.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 27H | Income Tax Assessment Act 1936 Subsection 27H(2) | Income Tax Assessment Act 1936 Subsection 27H(3) | Income Tax Assessment Act 1936 Subsection 27H(4) | Income Tax Assessment Act 1997 Section 960-50 - currency translation | Income Tax Regulations 1936 Regulation 9 | Income Tax Assessment Regulations 1997 Regulation 960-50.01 - currency translation

Reasons for decision: Summary: The part of your annual pension or annuity income which represents a return to you of your personal contributions is free from tax. The tax-free portion is called the deductible amount. It is calculated by dividing the UPP of your pension by either the term of the pension (if fixed), or a life expectancy factor - that applies to you or your spouse if they have a greater life expectancy - according to life expectancy statistics. The Australian life tables are published by the Australian Government Actuary, and the life expectancy is taken from when the pension first became payable. The annual deductible amount is calculated using the following formula: A (B - C) D A = relevant share of the pension payable to you (if all the pension is payable to you then A = 1) B = is the amount of the UPP of the pension C = is the residual capital value (if any) D = is the relevant number. By putting your information into the above formula, your annual deductible amount is obtained. | Detailed Reasoning - Part year calculation: Where a pension has commenced or finished during a financial year, the deductible amount is apportioned in accordance with the number of days the pension was payable to you in that year. | Detailed Reasoning - Converting foreign currency to Australian currency: Amounts in foreign currency must be translated into Australian currency at the applicable exchange rate. As your pension is paid on a regular monthly basis, you are entitled to use the average exchange rate to translate your pension income and the deductible amount of your UPP. The average exchange rates are available from our superannuation information line on 13 10 20 or visit our website at ato.gov.au/super | Detailed Reasoning - Other relevant comments: Please note that from 1 July 2007, the legislation changed in relation to superannuation pensions and benefits paid from complying superannuation funds. However, these changes do not affect any pensions paid from overseas funds which are not considered complying superannuation funds under section 42 of the Superannuation Industry (Supervision) Act 1993 as they are not resident funds. You will need to include your total foreign pension income in your income tax return and claim your annual deductible amount as advised by your private ruling above.