Private ruling: International Income
Date of advice: 12 February 2026
Published: 30 March 2026
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20YY
Date scheme commenced: DD MM 20YY

Ruling: Q1: Is your Country A pension taxable in Australia | A1: No. | Q2: If your Country A pension is not taxable in Australia, is it exempt income? | A2: Yes. | Q3: If your Country A pension is an exempt income, do you need to declare it in your tax return? | A3: Yes. | Q4: Do you still need to lodge a tax return. | A4: N/A - You should refer to our website ato.gov.au and web page with reference - QC21505 - Do I need to lodge a tax return? to help self-assess if you need to lodge.


Relevant legislative provisions: Income Tax Assessment Act 1936 | Income Tax Assessment Act 1997 subsection 6-5(2) | Income Tax Assessment Act 1997 subsection 6-10 (4) | A New Tax System (Family Assistance) Act 1999 section 5 of Schedule 3 | International Tax Agreement Act 1953

Reasons for decision: Summary: Your foreign-sourced pension is exempt income under Articles 18 and 19 of the tax agreement between Australia and Country A. Although this amount is not assessable in Australia, you must still include it in your tax return as target foreign income . | Detailed Reasoning - Detailed reasoning: Subsection 6-5(2) of the Income Tax Assessment Act 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. In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable tax agreements (DTA) Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Assessment Act 1936 (ITAA 1936) and the Income Assessment Act 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in the Agreement listed in section 5 has the force of the law. The Country A agreement is listed in section 5 of the Agreement and is called the Agreement between the Government of Australia and the Prevention of Fiscal Evasion with respect to Taxes on Income Article 18 and 19 (Country A Agreement). The Country A Agreement operates to avoid double taxation of income received by residents of Australia and Country A. The Country A Agreement states at Article 18: Subject to the provisions of paragraph (2) of Article 19, pensions paid to a resident of a Contracting State in consideration of past employment, and payments made to a resident of that State under the social security system of the other Contracting State, shall be taxable only in the first-mentioned State. Article 19 of the same agreement states that: 1. (a) Remuneration, other than a pension, paid by a Contracting State or a political subdivision or local authority of that State to an individual in respect of services rendered in the discharge of functions of a governmental nature shall be taxable only in that Contracting State. (b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that other State and the individual is a resident of that other State who: (i) is a citizen or national of that other State; or (ii) did not become a resident of that other State solely for the purpose of rendering the services. 2. (a) Any pension paid by, or out of funds created by, a Contracting State or a political subdivision or local authority of that State to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State. (b) However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a citizen or national of, that other State. The pension arises from your prior employment with a government authority of Country A. Payments of this kind are remuneration for services rendered to a foreign government and are treated as exempt income under Australian domestic law and relevant treaty provisions. Although the pension is exempt from income tax in Australia, section 5 of Schedule 3 to the A New Tax System (Family Assistance) Act 1999 requires that an individual's foreign income -as defined in section 10A of the Social Security Act 1991 -includes amounts received from overseas that are neither taxable income nor fringe benefits. On this basis, your Country A pension forms part of your target foreign income for the relevant income year. Disclosure of this amount as target foreign income is necessary to ensure the accurate calculation of various income-tested offsets, concessions and entitlements administered by the ATO and other government agencies. While the pension is exempt for income-tax purposes, it remains relevant for means-testing and assessment under these legislative frameworks. Although your Country A pension is not included in your assessable income under Australian domestic law and relevant treaty provision, you are still required to report the amount at label in the ' Income tests' section of your income tax return. | Summary: Your foreign-sourced pension is exempt income under Articles 18 and 19 of the tax agreement between Australia and Country A. Although this amount is not assessable in Australia, you must still include it in your tax return as target foreign income . Report this amount at label. | Detailed Reasoning - Detailed reasoning: Your foreign-sourced pension is exempt income in Australia because of the double tax agreement between Australia and Country A. The Agreement states at Article 18: Subject to the provisions of paragraph (2) of Article 19, pensions paid to a resident of a Contracting State in consideration of past employment, and payments made to a resident of that State under the social security system of the other Contracting State, shall be taxable only in the first-mentioned State. Article 19 of the same agreement states that: 1. (a) Remuneration, other than a pension, paid by a Contracting State or a political subdivision or local authority of that State to an individual in respect of services rendered in the discharge of functions of a governmental nature shall be taxable only in that Contracting State. (b) However, such remuneration shall be taxable only in the other Contracting State if the services are rendered in that other State and the individual is a resident of that other State who: (i) is a citizen or national of that other State; or (ii) did not become a resident of that other State solely for the purpose of rendering the services. 2. (a) Any pension paid by, or out of funds created by, a Contracting State or a political subdivision or local authority of that State to an individual in respect of services rendered to that State or subdivision or authority shall be taxable only in that State. (b) However, such pension shall be taxable only in the other Contracting State if the individual is a resident of, and a citizen or national of, that other State. This means that your pension income is not assessable and is exempt from tax in Australia under the double tax agreement outlined above. Although the pension is exempt from income tax in Australia, section 5 of Schedule 3 to the A New Tax System (Family Assistance) Act 1999 requires that an individual's foreign income -as defined in section 10A of the Social Security Act 1991 -includes amounts received from overseas that are neither taxable income nor fringe benefits. On this basis, your Country A pension forms part of your target foreign income for the relevant income year. Disclosure of this amount as target foreign income is necessary to ensure the accurate calculation of various income-tested offsets, concessions and entitlements administered by the ATO and other government agencies. While the pension is exempt for income-tax purposes, it remains relevant for means-testing and assessment under these legislative frameworks. Although your Country A pension is not included in your assessable income under Australian domestic law and relevant treaty provision, you are still required to report the amount at label IT4 in the 'Income tests' section of your income tax return. | Summary: You must include your exempt foreign pension income in your tax return at label - Target foreign income. Although this amount is exempt from tax and not included in your assessable income, you are still required to report it. The information you provide at is used to determine your eligibility for income-tested tax offsets, concessions and certain government benefits, and may also be used in other income-testing arrangements. Your employment income from employer A must also be reported, as required under subsection 6-5(2) of the ITAA 1997. This income is ordinary income derived directly or indirectly from all sources and forms part of your assessable income. | Detailed Reasoning - Detailed reasoning: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a taxpayer who is a resident of Australia includes ordinary income derived directly or indirectly from all sources whether in or out of Australia during the income year. However, if an amount is exempt income, it is not included in the assessable income of a taxpayer (section 6-15 of the ITAA 1997). Target foreign income (TFI) is an element in the calculation of adjusted taxable income (ATI) which is used for determining eligibility for concessions and benefits, so the purpose of TFI is to include foreign economic benefits enjoyed by the individual. TFI is defined in section 5 of Schedule 3 to A New Tax System (Family Assistance) Act 1999. Under paragraph (a) of the definition, TFI is the amount of the individual's foreign income (as defined in section 10A of the Social Security Act 1991 ) for the income year that is neither taxable income nor a fringe benefit. Under paragraph (b), TFI also includes any amount that is not covered by paragraph (a) that is exempt from tax under section 23AF or 23AG of the ITAA 1936. Section 10A of the Social Security Act 1991 (SSA 1991) provides that "foreign income", in relation to a person, means: (a) an income amount earned, derived or received by the person from a source outside Australia for the person's own use or benefit; or (b) a periodical payment by way of gift or allowance from a source outside Australia; or (c) a periodical benefit by way of gift or allowance from a source outside Australia. In relation to paragraph 10A(a) of the SSA 1991, subsection 8(1) of the SSA 1991 states that 'income amount' means: (a) valuable consideration; or (b) personal earnings; or (c) moneys; or (d) profits. (whether of a capital nature or not). Based on the information you have provided, the foreign pension you received is considered target foreign income. This is because the amount was earned, derived or received from a source outside Australia, is not included in your taxable income, and was not received as a fringe benefit. You must still report this amount in your tax return at label - Target foreign income. As an Australian resident for tax purposes, your employment income must also be reported in your tax return. This is because your assessable income includes income from all sources, whether earned in Australia or overseas. | Detailed Reasoning - Question 4: N/A - You should refer to our website ato.gov.au and web page with reference - QC21505 - Do I need to lodge a tax return? to help self-assess if you need to lodge. | Detailed Reasoning - Other matters: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. Under sections 130, 148 and 161 of the ITAA 1936, every person covered by one or more of subsections 6(2) to 6(12) is required to give a return for the 2024 and 2025 years unless an exception in section 7 applies to them. While not all persons in receipt of income have to lodge a return. Australia tax resident individuals, whose taxable income is less than $18,200 may still need to lodge a return if they have had PAYG amounts withheld from their pay or other income or have current year or prior year losses. You have stated you have had tax withheld from interest received on your Bank account and therefore will likely need to lodge a tax return. When lodging your Australian tax return, you should ensure you include all worldwide income assessable and exempt where required. If you still believe you may not need to lodge, please refer to our website ato.gov.au and web page with reference - QC21505 - Do I need to lodge a tax return? to help self-assess if you need to lodge.

You are a registered resident and citizen in city A, People's Republic of Country A. | On DD MM 20YY, you retired from your employment in Country A. During the period leading up to that date, you were employed as a teacher at a public school located in city A, Province AB. | Public schools in Country A are administered by government authorities, and employees of such institutions, including teachers, are regarded as public sector employees engaged in the provision of services to a political subdivision of the State. | On DD MM 20YY, you arrived in Australia, and on XX April 20XX you formed the intention to reside in Australia on a permanent basis. | You are not an Australian citizen. | You are an Australian resident for tax purposes. | You have been receiving a Country A government pension since your retirement from the Country A's government services in 20YY. | The pension you receive is paid by the Government A. The payment is made in respect of your prior government service as a teacher. | You commenced employment in Australia with company A in MM 20YY. This employment is ongoing. All duties associated with this role are performed on the employer's premises. Company A maintains a fixed and established place of business in Australia at which the duties are undertaken. | There is a double tax agreement between Australia and Country A. | Reasons for decision: This is to explain how we reached our decision. This is not part of the private ruling.