Private ruling: Foreign pension
Date of advice: 20 June 2016
Published: August 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the pension you received from a prescribed International Organisation tax exempt income? | A1: No

Relevant facts and circumstances: You are an Australian resident. You were employed with a prescribed International Organisation for a period of time. Your employment contract stated that participation in the applicable fund was obligatory for all staff members holding an appointment over a certain period of time and that the organisation contributes twice the amount of the participant's contribution. The fund was used solely to receive contributions compulsorily deducted from your tax-free salary and the employer contributions. On retirement from the organisation you returned to Australia. Upon retirement you opted for a full deferred retirement benefit to begin at a certain point in time on a monthly basis. You advised you have been in receipt of the pension within the relevant period. You have not received a lump sum payment. You cannot make further additional payments or withdrawals from the fund.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5 | Income Tax Assessment Act 1997 Subsection 6-5(2)

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 an Australian resident includes ordinary and statutory income they derived directly or indirectly from all sources, whether in or out of Australia during the income year. Pensions and annuities are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. Salaries and emoluments received from an International Organisation by a 'person who holds an office' in that organisation may be exempt from Australian income tax under regulations made under the International Organisations (Privileges and Immunities) Act 1963 (IO(P+I)A). Taxation Ruling TR 92/14 Income tax: taxation privileges and immunities of prescribed International Organisations and their staff describes the operation of privileges and immunities relating to taxation that apply to International Organisations and persons working for these organisation. Paragraph 13 of TR 92/14 states "A pension received from a prescribed International Organisation is not exempt from tax in Australia as the IO(P+I)A does not extend tax exemptions to a former officer of an International Organisation." It is considered that the phrase 'person who holds an office' in relation to a prescribed International Organisation covers those people who work as employees for that organisation ( Taxation Determination TD 92/153 Income tax: who is a 'person who holds an office' as specified in various regulations made under the International Organisations (Privileges and Immunities) Act 1963?) . The assessability of pensions paid by an International Organisation to a former officer of an International Organisation came before a Taxation Board of Review where a pension recipient sought exemption from tax under former paragraph 23(y) of the Income Tax Assessment Act 1936 (ITAA 1936). The Board dismissed the taxpayer's claim that the pension was an emolument of an official of a prescribed organisation, holding that the term emolument related to a monetary benefit paid to a serving officer, rather than as including pension payments to a former official. Consequently, the pension received as a result of former employment with the International Organisation was not exempt under former paragraph 23(y): Case M90 80 ATC 648. See also Taxation Ruling TR 92/14; Taxation Determination TD 92/153. In your ruling application you provided the following internet link to an article on The Tax Institute's website: http://www.taxinstitute.com.au/news/pension-payments-from-world-bank-exempt-from-tax-macoun. The article is dated 27 March 2014 and refers to the Administrative Appeals Tribunal decision in Macoun and FCT [2014] AATA 155 of which the decision has been set aside by the Full Court of the Federal Court of Australia in Macoun and FCT [2015] HCA 44 (the Macoun Case ). The High Court decision in the Macoun Case unanimously held that the taxpayer's monthly pension payments were not exempt from tax for the following reasons: the taxpayer had ceased to hold an office in the International Organisation when he received the payments, the payments were not received from the International Organisation but from the retirement fund, and the pension payments fell outside the phrase 'salaries and emoluments received from the organisation' ( Decision Impact Statement S100/2015: Macoun v. Commissioner of Taxation). You have argued that the character of the payment was a vested entitlement prior to the termination of your employment. In the Macoun Case it was also submitted that the pension was a vested right. The High Court found "…his right to receive the pension was not a vested right which existed when he was an office holder." It was found that the right to the pension did not arise until Mr Macoun ceased to hold office and ceased to be a participant in the fund. Therefore in your case, as you have ceased to hold an office in the prescribed International Organisation when you received the payments, the payments received were from the pension fund and the payments fall outside of the definition of the phrase 'salaries and emoluments' the pension you are receiving from the International Organisation is not exempt income in Australia.