Private ruling: International - pension
Date of advice: 16 August 2022
Published: November 2022
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the monthly pension you receive from an overseas country assessable in Australia? | A1: Yes.

Relevant facts and circumstances: You permanently re-located to Australia from Country A. You are an Australian resident for taxation purposes. You are a dual citizen of Australia and Country A. You previously worked for a XXXX XXXX overseas as a XXXX XXXX in one of their XXXX XXXX. As part of your employment, you were provided several options for the payment of your pension in your retirement. You opted for a monthly annuity provided for life. The monthly defined benefit is paid to you by a retirement service overseas. You have been advised the payment is considered a pension for Country A's income tax purposes. A percentage of each monthly payment is mandatorily withheld for Country A's income tax purposes.

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

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Pension payments are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. In determining liability to Australian tax on foreign sourced income received by a resident taxpayer, it is necessary to consider not only the income tax laws but also any applicable Double Tax Agreement contained in the International Tax Agreements Act 1953 (the Agreements Act). Section 4 and 5 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. The Country A Convention is contained within Section 5 of the Agreements Act. Article 18 of the Country A Convention specifically deals with the taxation of pensions and annuities income. This Article provides that, subject to Article 19 of the Country A Convention, Australia has the sole taxing rights over pensions and annuities income paid to an individual who is a resident of Australia. The pension from Country A you receive comes within the definition of a pension under Article 18(4) of the Country A Convention. Article 19 of the Country A Convention explains that remuneration, including pensions, paid from funds of the Country A for labour or personal services performed as an employee in the discharge of governmental functions to a citizen of Country A shall be exempt from tax in Australia. The relevant documents and practices in relation to Article 19 of the Country A Convention indicate that the Country A considers the phrase governmental function should be given a very narrow interpretation and that Australia has accepted this position for the purposes of the Country A Convention. This interpretation excludes non-core government functions from being a governmental function for the purposes of Article 19 of the Country A Convention. Paragraph 88 of Taxation Ruling TR 2005/8 Income tax: the meaning of particular terms in the Government Service Articles of Australia's tax treaties provides that the term in discharge of governmental functions in Country A is understood to encompass functions traditionally carried on by a government such as military, diplomatic service, tax administrators and activities that directly support the carrying out of those functions. It would not include functions that are commonly found in the private sector (e.g., education, health care and utilities). You were not engaged in the discharge of government function for the purposes of Article 19 of the Country A Convention. As such, the pension you receive is not covered by Article 19 of the Country A. Instead, it would fall for consideration under Article 18 of the Country A. Accordingly, the monthly pension you receive from Country A is assessable in Australia under subsection 6-5(2) of the ITAA 1997.