Private ruling: Assessability of foreign pension
Date of advice: 19 June 2015
Published: June 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Question and answer | Is your Country X war disablement pension assessable in Australia? | No

Relevant facts and circumstances: You are an Australian citizen and an Australian resident for tax purposes. You receive a war disablement pension from Country X. The pension is exempt from tax in Country X. There is a tax treaty between Australia and Country X.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2). | Income Tax Assessment Act 1997 Subsection 6-15(2). | Income Tax Assessment Act 1997 Section 11-15. | Income Tax Assessment Act 1997 Section 53-10. | International Tax Agreements Act 1953

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Subsection 6-15(2) of the ITAA 1997 provides that any income that is exempt income will not be included in assessable income. Section 11-15 of the ITAA 1997 lists those provisions dealing with income which may be exempt. Included in this list is section 53-10 of the ITAA 1997 which deals with wounds and disability pension. Item 5 of the table in section 53-10 of the ITAA 1997 provides that wounds and disability pensions are wholly exempt provided that the payment is of a kind specified in section 641 of the Income Tax (Earnings and Pensions) Act 2003 of the overseas country. Section 641 of the Income Tax (Earnings and Pensions) Act 2003 of the overseas country provides that income from wounds and disability pensions are exempt income if they are disablement or disability pensions granted to members of the naval, military or air forces of the Crown on account of medical unfitness attributable to or aggravated by naval, military or air-force service (formerly enacted as subsection 315(2) of the Income and Corporation Taxes Act 1988 (ICTA) of the overseas country). Taxation Ruling IT 2586 (entitled Income tax: Wounds and disability pensions paid by foreign government: whether exemp t) states that wounds and disability pensions paid to Australian residents by a foreign government will be exempt from Australian tax if they fit into one of the categories of pensions described in former subsection 315(2) of the ICTA of the overseas country. In determining liability to Australian tax on foreign source income, it is relevant to consider not only the income tax laws but also any applicable double tax treaty contained in the International tax Agreements Act 1953 (the Agreements Act). There is a double tax agreement in force between Australia and Country X (the Country X Agreement) which operates to avoid the double taxation of income received by residents of Australia and Country X. An Article of the Country X treaty provides that pensions including government pensions paid to residents of Australia are taxable only in Australia. In your case, the war disablement pension from Country X is exempt under section 53-10 of the ITAA 1997 as it is of the kind specified in former subsection 315(2) of the ICTA of the overseas country. Consequently, as your pension is exempt income, it is not included as assessable income in accordance with subsection 6-15(2) of the ITAA 1997.