Private ruling: Foreign pension income
Date of advice: 9 December 2021
Published: March 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 pension you receive from Country Z included in your assessable income in Australia? | A1: Yes.

Relevant facts and circumstances: You are a citizen of Country Z and an Australian citizen. You became an Australian citizen. You are a resident of Australia for tax purposes. You worked as a teacher in a government school in Country Z. You receive an invalid pension as a result of the health problems.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5

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 taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. A pension is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. In determining liability to Australian tax on foreign source income it is necessary to consider not only the income tax laws but also any applicable tax treaty (double tax agreement). There is a tax treaty between Australia and Country Z. The Country Z Agreement operates to avoid the double taxation of income received by Australian and Country Z residents. Article 19 of the Country Z Agreement deals with government service pensions. Paragraph (2) of Article 19 of the Country Z Agreement provides that any pension paid to an individual in respect of services rendered in the discharge of governmental functions in Country Z will be taxable only in Country Z. However, the pension is taxable only in Australia if the individual is a citizen or national of Australia and a resident of Australia. In your case, you are a citizen of both Country Z and Australia. Your pension is therefore taxable only in Australia under Article 19 of the Country Z Agreement and is consequently included in your assessable income in Australia under subsection 6-5(2) of the ITAA 1997.