Private ruling: Foreign pension income
Date of advice: 4 August 2025
Published: 7 October 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the income you derive from a Country B pension assessable in Australia from MM YYYY? | A1: Yes.

Relevant facts and circumstances: You were born in Country B in YYYY. On DD MM YYYY, you began working for the Country B government and enrolled in its pension fund. During your employment, the government deducted fully taxed contributions from your salary and deposited them into the fund. You did not make any personal contributions beyond these mandatory deductions. Country B government owned and managed the pension fund, which was structured to provide a monthly defined benefit pension starting at the preservation age of XX. The pension amount depended on your total years of service and the cumulative contributions made during your employment. The fund did not permit early access before age XX for males and XX for females, except in cases of permanent disability. Additionally, members had to contribute for at least XX years to qualify. The pension is tax free in Country B because you had already paid tax on this money when you earned it during your working life there. On DD MM YYYY, you ceased employment with Country B government when you immigrated to Australia. On DD MM YYYY, you arrived in Australia and became a resident for tax purposes. Prior to your arrival, you were granted a work permit visa. On DD MM YYYY, you became an Australian citizen and have not made any contributions to the pension fund since that time. You currently hold dual citizenship with Australia and Country B. In YYYY, you retired. In MM YYYY, you began receiving monthly pension payments from Country B, amounting to approximately $XX AUD.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(1) | Income Tax Assessment Act 1997 subsection 6-5(2) | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 section 6-15 | Income Tax Assessment Act 1997 section 10-5 | Income Tax Assessment Act 1936 section 27H | Income Tax Assessment Act 1997 division 770

Reasons for decision: Detailed Reasoning - Ordinary income and statutory income: Subsection 6-5(1) of the Income Tax Assessment 1997 (ITAA 1997) provides that assessable income includes 'income according to ordinary concepts', which is called ordinary income. Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a taxpayer who is a resident of Australia includes ordinary income derived directly or indirectly from all sources whether in or out of Australia during the income year. However, if an amount is exempt income, it is not included in the assessable income of a taxpayer (section 6-15 of the ITAA 1997). Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of an Australian resident includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) of the ITAA 1997). Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list is section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) which provides that annuities and superannuation pensions are included in assessable income. This section states that annuities first payable on or after 1 July 1983 are included in the assessable income of the taxpayer, excluding the undeducted purchase price if the annuity was purchased. Income according to ordinary concepts 'Income according to ordinary concepts' is not defined within the legislation; however, case law discussion has provided the following characteristics: • It is received periodically • It is earned as a result of work performed • It is expected • It is relied upon • It replaces income or has the characteristics of income In your case, you are an Australian resident taxpayer entitled to foreign Government pension benefits as a result of your previous service for that Government. You have elected to receive the pension benefits as monthly pension payments. The Commissioner considers that your pension payments will be ordinary income pursuant to subsection 6-5(1) of the ITAA 1997 as these payments have the characteristics of ordinary income. They have been earned as a result of work performed, are expected, and will be relied upon. The payments will also be received periodically. In determining liability to Australian tax on foreign sourced income received by a resident it is necessary to also consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (Agreements Act). Double Tax agreements Australia has entered into double tax agreements (DTAs) with over 40 countries to prevent double taxation and combat tax evasion. These agreements also help resolve interpretational differences and establish a framework for consultation and dispute resolution between Australia and its treaty partners. Most DTAs include provisions for taxing pensions and annuities. Typically, the country where the income recipient resides holds the right to tax these payments. Australia has not signed a double tax agreement with Country B. Therefore, Australian income tax law solely determines how your pension income from Serbia is assessed. In your case, as a resident of Australia for tax purposes since your arrival on DD MM YYYY, you must include your Country B pension payments in your assessable income. These payments constitute ordinary income and are not exempt from tax. Section 27H of the ITAA 1936 and section 6-10 of the ITAA 1997 govern the inclusion of this income. As an Australian tax resident, you are taxed exclusively in Australia on pension income received from Country B. Foreign Income Tax Offsets Division 770 of the ITAA 1997 provides that where the assessable income of a resident contains foreign sourced income, and foreign tax has been paid by the taxpayer on that income, a foreign income tax offset tax will be allowed. The foreign income tax offset allowed against Australian income tax is the less of: • The amount of that foreign tax paid, reduced in accordance with any relief available to the taxpayer under the law relating to that tax; or • The amount of Australian tax payable in respect of the foreign income.