Private ruling: Foreign source pension
Published: August 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Questions and answers: | 1. Is the foreign source pension you receive assessable to you for income tax purposes? | Yes. | 2. If the foreign source pension you receive is not assessable to you, do the anti-avoidance provisions of the taxation legislation apply to make it assessable to you? | Not applicable.

Relevant facts and circumstances: You are an Australia resident for income tax purposes. You are the recipient of a foreign pension (the pension). On 1 July 20XX, you and your spouse entered into an agreement in relation to your pension which stated that: · you would assign to your spouse the full beneficial monetary proceeds of the pension; · you agreed that your spouse was to have the benefit for her own personal use of all the proceeds derived from the pension; and · you understood the nature of the agreement and had received the necessary legal advice in relation to the agreement. Your spouse included the pension income in her income tax return for the income tax year ended 30 June 20XX. You have not yet lodged your income tax return for the income tax year ended 30 June 20XX.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1936 Section 27H

Reasons for decision: Summary: Sections 6-5 and 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provide that the assessable income of an Australian resident includes their ordinary and statutory income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Pensions are included in assessable income under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936). Alienation of income occurs when an arrangement is made under which income that would otherwise be assessable to a taxpayer becomes income of a different taxpayer. One of the main areas with which alienation is associated is the transfer of rights to receive income. However, transfers of this type have faced difficulties in being recognised as legally effective as there is an important distinction between the alienation of income and the application of income. Generally speaking, the courts have found that attempts to alienate income have been ineffective when the attempted assignment was no more than an application and disposition of income which the assignor had derived or was deemed to have derived. In your case, you are in receipt of a foreign pension which was earned by you and which you have the legal right to. You have entered into an agreement in which you assigned to your spouse the full beneficial rights to your pension. Although you have every right to apply the income from your pension to the benefit of your spouse, this is a private arrangement which does not alter the fact that the legal right to the pension is yours and that the pension is derived by you. The right to the pension is yours and the agreement you entered into constitutes an application of the income to your spouse, not an effective assignment or alienation of that income. You have derived the pension and it is assessable income to you under section 27H of the ITAA 1936.