Private ruling: Undeducted Purchase Price (UPP) of your foreign pension
Date of advice: 17 August 2015
Published: August 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deductible amount in respect of the UPP of your foreign pension? | A1: Yes, your deductible amount has been calculated in accordance with subsection 27H(2) of the Income Tax Assessment Act 1936 (ITAA 1936).

Relevant facts and circumstances: You receive a pension from a retirement fund established and managed outside Australia. The international tax agreement between Australia and the country in which the retirement fund is established and managed provides that the pension is taxable in Australia. Your assessable income includes your pension income. All the pension is payable to you. The pension became payable on or after 1 July 2012. The pension is payable for life. The total amount of contributions, other than employer contributions, paid to the retirement fund towards the purchase of the pension. The residual capital value is nil. Your pension is paid on a regular 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(4) | Income Tax Regulations 1936 Regulation 9 | Income Tax Assessment Act 1997 Section 960-50 - currency translation | Income Tax Assessment Regulations 1997 Regulation 960-50.01 - currency translation Other references: | Taxation Determination TD 2006/17 | Taxation Determination TD 2006/54

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. | Detailed Reasoning - Other relevant comments: As a general rule, the deductible amount is translated to Australian currency using the same exchange rate applying to the pension. The average exchange rates are available from your superannuation information line on 13 10 20 or visit our website at ato.gov.au/super 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.