Private ruling: Deductible amount of the undeducted purchase price of your foreign pension
Date of advice: 21 August 2015
Published: August 2015

Ruling: Q1: Are you entitled to a deductible amount in respect of your foreign pension? | A1: Yes, your annual deductible amount has been calculated in accordance with the legislation.

Relevant facts and circumstances: This ruling is based on the facts stated below. Any material variation from these facts (including any matters not stated in the description above and any departure from these facts) will mean that the ruling will have no effect. Where there is no variation, the ruling can apply for more than just the period/s mentioned above. You are resident of Australia for income tax purposes Your pension is paid by a retirement fund established and managed outside Australia You currently receive 100% of the pension The residual capital value of the pension is nil. You have provided a copy of your fund statement to assist the Commissioner in determining the amount of your personal contributions

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(4) | Income Tax Regulations 1936 Regulation 9

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 By putting your information into the above formula, your annual deductible amount is obtained. | Detailed Reasoning - Relevant facts and circumstances: This ruling is based on the facts stated below. Any material variation from these facts (including any matters not stated in the description above and any departure from these facts) will mean that the ruling will have no effect. Where there is no variation, the ruling can apply for more than just the period/s mentioned above. You are resident of Australia for income tax purposes Your pension is paid by a retirement fund established and managed outside Australia You currently receive 100% of the pension The residual capital value of the pension is nil. You have provided a copy of your fund statement to assist the Commissioner in determining the amount of your personal contributions | Detailed Reasoning - 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(4) Income Tax Regulations 1936 Regulation 9 | Detailed Reasoning - Question: Are you entitled to a deductible amount in respect of your foreign pension? | Detailed Reasoning - Answer: Yes, your annual deductible amount your annual deductible amount has been calculated in accordance with the legislation. | Detailed Reasoning - Reasons for Decision: 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. In recognition of the difficulties Italian pensioners face in obtaining information relating to their contributions to the INPS, Taxation Ruling IT 2554 Income tax: Australia/Italy double taxation agreement: Italian pensions derived by Australian residents allows for the following alternative formula to be used to calculate the deductible amount. (amount of contributive portion for XXXX and YYYY calendar years) X 90% 2 It must be noted that the contributive portion supplied on the Article 10 letters issued by INPS are based on calendar years. Therefore, to calculate the deductible amount for each Australian financial year, two years' statements are required. The contributive portion (reduced by 10% to reflect the interest element in that component of the pension) is the annual exclusion amount. | Detailed Reasoning - Relevant facts and circumstances: This ruling is based on the facts stated below. Any material variation from these facts (including any matters not stated in the description above and any departure from these facts) will mean that the ruling will have no effect. Where there is no variation, the ruling can apply for more than just the period/s mentioned above. You are resident of Australia for income tax purposes You have provided a copy of your fund statement to assist the Commissioner in determining the amount of your personal contributions Your pension is paid by a retirement fund established and managed outside Australia You currently receive 100% of the pension | Detailed Reasoning - Assumptions: No assumptions have been used in this ruling as it is given on the basis of the facts and circumstances stated above. | Detailed Reasoning - Relevant legislative provisions: Income Tax Assessment Act 1936 Section 27H Income Tax Assessment Act 1936 Subsection 27H(3) Income Tax Assessment Act 1936 Subsection 27H(4) Income Tax Regulations 1936 Regulation 9 | Detailed Reasoning - ATO view documents:: Taxation Ruling IT 2554 | Detailed Reasoning - Important information to note: The deductible amount can only be included in your tax return if you have declared your pension income. When including these amounts, they should be translated to Australian currency using the same exchange rate. More information about exchange rates is available from our website by entering 'QC 16583' in the search box on the top right of the page.