Private ruling: Pension income
Date of advice: 3 March 2026
Published: 4 May 2026
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the pension payments you receive from the Country Z Plan 1 exempt from tax in Australia under the Article of the double tax agreement between Country Z and Australia? | A1: Yes. | Q2: Are the periodic payments or lump sum payments received by you from the Country Z Plan 2, assessable income in Australia? | A2: Yes.

Relevant facts and circumstances: You are a citizen of both Australia and Country Z. You have retired from your work in Country Z. You intend on relocating to Australia. You will be a resident of Australia for taxation purposes when you relocate to Australia. You are in receipt of the following: Plan 1 - pension Plan 2 - voluntary savings account

Relevant legislative provisions: Income Tax Assessment Act 1936 section 99B | Income Tax Assessment Act 1936 section 102AAM | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 295-95 | Income Tax Assessment Act 1997 section 305-70 | Income Tax Assessment Act 1997 section 995-1 | International Tax Agreements Act 1953

Reasons for decision: Summary: Plan 1 payments pension: 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. Pension income is ordinary income assessable under subsection 6-5(2) of the ITAA 1997. 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 double tax agreements. Section 4 of the International Tax Agreements Act 1953 (Agreements Act) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 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 some limited situations). Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country Z Agreement is listed in the Agreements Act. The agreement between Australia and Country Z operates to avoid the double taxation of income received by residents of Australia and Country Z. The Country Z agreement considers the tax treatment of governmental salaries, wages and other similar remunerations including pensions paid from funds of one of the Contracting States, of a state or other political subdivision thereof or of an agency or authority of any of the foregoing for labor or personal services performed as an employee of any of the above in the discharge of governmental functions to a citizen of that State shall be exempt from tax by the other Contracting State. Your Country Z Plan 1 pension is not assessable in Australia under the DTA between Australia and Country Z as you are a citizen of Country Z. Consequently, you are not required to declare the pension income in your Australian tax return. Plan 2: Section 305-70 of the ITAA 1997 provides that where the Taxpayer receives a lump sum from a foreign superannuation fund more than six months after becoming an Australian resident, they include the 'applicable fund earnings' of the lump sum (if any) in their assessable income. Applicable fund earnings are worked out under section 305 75 of the ITAA 1997. If the entity making the lump sum payment is not a foreign superannuation fund, then section 305-70 of the ITAA 1997 will not have any application. Meaning of 'foreign superannuation fund' A 'foreign superannuation fund' is defined in subsection 995 1(1) of the ITAA 1997 as follows: (a) a superannuation fund is a foreign superannuation fund at a time if the fund is not an Australian superannuation fund at that time; and (b) a superannuation fund is a foreign superannuation fund for an income year if the fund is not an Australian superannuation fund for the income year. Relevantly, subsection 295-95(2) of the ITAA 1997 defines 'Australian superannuation fund' as follows: A superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if: (a) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and (b) at that time, the central management and control of the fund is ordinarily in Australia; and (c) at that time either the fund had no member covered by subsection (3) (an active member) or at least 50% of: (i) the total market value of the fund's assets attributable to superannuation interests held by active members; or (ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members; is attributable to superannuation interests held by active members who are Australian residents. Thus, a superannuation fund that is established outside of Australia and has its central management and control outside of Australia would qualify as a foreign superannuation fund. The fact that some of its members may be Australian residents would not necessarily alter this. | Detailed Reasoning - Meaning of 'superannuation fund': Superannuation fund' is defined in subsection 995 1(1) of the ITAA 1997 as having the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA). Subsection 10(1) of the SISA provides that: superannuation fund means: (a) a fund that: (i) is an indefinitely continuing fund; and (ii) is a provident, benefit, superannuation or retirement fund; or (b) a public sector superannuation scheme. Meaning of 'provident, benefit, superannuation or retirement fund' Whether Plan 2 is a foreign superannuation fund requires consideration of the meaning of the term 'provident, benefit, superannuation or retirement fund' in subsection 10(1) of the SISA. Each of these terms are not defined in the ITAA 1936, ITAA 1997, the SISA or elsewhere in the tax acts. Accordingly, those terms will derive their meaning from their ordinary meaning and the relevant case law. In the context of considering the term 'provident, benefit or superannuation fund established for the benefit of employees', in former subparagraph 23(j)(i) of the ITAA 1936, the Full Bench of the High Court in Mahony v Commissioner of Taxation (Cth) (1967) 41 ALJR 232; (1967) 14 ATD 519 (Mahony) considered that this phrase denoted 'a purpose narrower than the conferral of benefits in a completely general sense' and had to be characterised by 'some specific future purpose'. In the case of a provident fund, against 'contemplated contingencies; in the case of a superannuation fund 'on retirement, death or cessation of employment'; and, in the case of a benefit fund 'a benefit characterised by some specific future purpose' (e.g. a funeral fund). Furthermore, Justice Kitto's judgement in Mahony indicated that a fund does not satisfy any of the three provisions, that is, either a 'provident, benefit or superannuation fund', if there exist provisions for the payment of benefits 'for any other reason whatsoever'. A similar approach was also adopted by Taylor J and Windeyer JJ in Mahony who said: ...In other words, if they could, keeping within the terms of the trust, apply the fund or any portion thereof to purposes foreign to the true purposes of such a fund, then it would not be such a fund. Accordingly, the purpose of the fund must be solely consistent with it being a 'provident, benefit or superannuation fund'. Similar observations have been made in a number of other authorities. In the context of what constitutes a 'superannuation fund' and a 'fund', Justice Windeyer in Scott v. Federal Commissioner of Taxation (No. 2) (1966) 10 AITR 290; (1966) 40 ALJR 265; (1966) 14 ATD 333 emphasised the 'sole purpose' requirement, stating: ...I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion "fund", I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalised. I do not put this forward as a definition, but rather as a general description. More recently, in considering the term 'provident, benefit, superannuation or retirement fund' as it now appears in the definition of 'superannuation fund' in subsection 10(1) of the SISA, Senior Member FD O'Loughlin in Baker v. FC of T [2015] AATA 469 (Baker) stated at [16]: Accordingly, a trust arrangement that is not a provident fund, benefit fund or retirement fund, that allows for payment of superannuation styled benefits and other benefits not permitted by the Supervision Act will not be a superannuation fund. Whilst the Senior Member in Baker made reference to 'benefits not permitted by the Supervision Act' in the context of considering whether a particular fund which was not a 'provident, benefit or retirement fund' was a 'superannuation fund', it is noted that section 62 of the SISA largely replicates the relevant case law and requires the fund be 'maintained solely' for one or more of the 'core purposes' of providing benefits to a member when the events occur: • on or after retirement from gainful employment; • attaining a prescribed age; or • on the member's death (this may require the benefits being passed on to a member's dependants or legal representative). Whether a fund has been established for the requisite purpose required, is determined by considering the terms of the trust deed. This is an objective determination, and it is not determined by the subjective intentions of the parties. Whether a particular arrangement constitutes a superannuation fund is dependent upon the facts and circumstances of the case. Regard is had to the terms of the constituent arrangements and what the relevant trustee can and cannot do, and is and is not obliged to do, with the trust assets and property. As Taylor and Windeyer JJ observed in Mahony: It thus becomes necessary to look carefully and critically at the terms of the trust deed, at what is required and what is permitted - that is to say in what ways the trustees might, without any breach of the trusts it imposes, apply the trust property. In this case, Plan 2, allows monetary withdrawals in arrange of circumstances. The Plan satisfies some of the requirements of a foreign superannuation fund, however in general the Plan is not exclusively a provident, benefit or superannuation fund. This is because it does not provide benefits solely for the specific future purposes of the individual's retirement. Members can withdraw benefits prior to retirement age, including upon ceasing employment. In other words, the Plan provides for the payment of benefits for purposes other than retirement and not solely (that is, exclusively) for retirement purposes. Accordingly, in circumstances where the Plan permits the withdrawal of benefits for purposes not solely consistent with the fund being a 'superannuation fund', the Plan cannot be a 'foreign superannuation fund' as defined in subsection 995-1(1) of the ITAA 1997. | Detailed Reasoning - Payment 'in the nature of superannuation upon retirement or death': Where the Plan is not a superannuation fund, consideration must be given as to whether the payment is made from a scheme for the payment of benefits 'in the nature of superannuation upon retirement or death' as contemplated by subsection 305-55(2) of the ITAA 1997. Subsection 305-55(3) of the ITAA 1997 ensures that payments from foreign superannuation schemes under subsection 305-55(2) are taxed in the same way as if they were paid from a 'foreign superannuation fund'. It is intended to apply to payments that, though not from a superannuation fund, are nevertheless payments made from a scheme that has the same characteristics as superannuation. Subsection 305-55(2) of the ITAA 1997 does not define the concept of payment of benefits 'in the nature of superannuation'. The ordinary meaning of 'in the nature of' is something similar to, typical of, or in the manner of' superannuation. Therefore, payments which closely align with the purpose of superannuation will amount to payments in the 'nature of superannuation'. In Baker , Senior Member FD O'Loughlin stated at [19]: ... for a payment to be a payment from a scheme for the payment of benefits in the nature of superannuation upon retirement the scheme would need to provide for payments that have the essential qualities, character or features of payments of superannuation benefits on retirement. Further, the scheme would need to be such that such payments were more than just possibilities among a range of alternatives such as simple withdrawals available at any time. Baker was decided on the basis money could be withdrawn from an Individual Retirement Account (IRA) at any time prior to any retirement event at the complete discretion of the IRA account holder. Due to the flexibility of monetary withdrawals, 'in the nature of superannuation' payments from the IRA were but one of a number of possibilities. Accordingly, this meant that the scheme was not one for the payment of benefits 'in the nature of superannuation upon retirement or death' within the meaning of section 305-55(2) of the ITAA 1997. Similarly, in the present context, whilst moneys could be withdrawn from the Plan for purposes that do come within the nature of superannuation upon retirement or death, this was one of a range of possibilities for which that benefits could be withdrawn. Those other possibilities having no direct connection with a benefit provided 'in the nature of superannuation upon retirement or death'. Therefore, it cannot be considered that moneys paid from the Plan are paid from a scheme this is solely for the payment of benefits 'in the nature of superannuation upon retirement or death' as contemplated by subsection 305-55(2) of the ITAA 1997. Broadly, section 99B of the ITAA 1936 deals with the receipt of trust amounts that have not previously been subject to tax in Australia. It applies where an Australian resident for tax purposes receives a lump sum payment from a foreign trust. Subsection 99B(1) of the ITAA 1936 provides that where a beneficiary who was an Australian resident at any time during an income year is paid an amount from a trust or has an amount of trust property applied for their benefit, that amount is to be included in the assessable income of the beneficiary in the income year it is paid. However, subsection 99B(2) of the ITAA 1936 reduces the amount to be included in assessable income under subsection 99B(1) by so much of that amount, relevantly for present purposes, as represents the corpus of the trust, but not to the extent that it is attributable to income derived by the trust which would have been subject to tax had it been derived by a resident taxpayer. The term 'corpus' is not defined in the legislation; therefore, it takes the ordinary meaning of the term. The Macquarie Dictionary (Online edition 2019) defines 'corpus' to mean a 'principal or capital sum, as opposed to interest or income'. Accordingly, the whole amount of the earnings is assessable in Australia, not just the earnings that accrued from when a member of the fund became a resident of Australia for taxation purposes. The amount that represents the corpus of the fund includes any amounts previously deposited into the fund. The lump sum may also include amounts that represent earnings of the fund. The fund earnings are not taken to represent corpus, as the earnings are attributable to income derived by the fund which would have been subject to tax had the earnings been derived by a resident taxpayer. | Detailed Reasoning - Section 102AAM: If section 99B of the ITAA 1936 includes a distribution of accumulated income from a non-resident trust estate in your assessable income, you may be liable to pay additional tax in the nature of an interest charge on the distribution, under section 102AAM of the ITAA 1936. Section 102AAM of the ITAA 1936 imposes an additional interest charge on certain distributions from non-resident trusts, including distributions taxed under subsection 99B (1) of the ITAA 1936. This is a compensatory charge for the tax deferred while profits were accumulated offshore in the trust. The Commissioner has no discretion to remit or reduce the additional charge imposed by section 102AAM. The interest charge is calculated under subsection 102AAM(5) of the ITAA 1936. The amount interest is charged on is determined in accordance with the formula in subsection 102AAM (2): {Distributed amount x applicable rate of tax} - Foreign income tax offset. The withdrawal which will result in an amount included in your assessable income under subsection 99B (1) is from a foreign resident trust. Country Y is a listed country under the regulations of the Income Tax Assessment (1936 Act) Regulation 2015 . On that basis, paragraph 102AAM(1)(a) provides that the 'distributed amount' will be the section 99B amount where the distribution relates to a listed country trust estate and all or part of the amount is attributable to income or profits of the trust in the form of eligible designated concession income. The amount interest will be charged on therefore equals the amount of the distribution that is included in the beneficiary's assessable income under subsection 99B(1) grossed up for any foreign tax claimed on that share. The applicable rate of tax is the maximum marginal rate that applies for the income year of the taxpayer in which the trust distribution is received. Interest is charged at the base rate and assuming the trust received the reinvested income post 1 July 1990, interest will be calculated and imposed from the income year in which the reinvested income was earned. | Detailed Reasoning - Application to your circumstances: The periodic payments or lump sum payments you receive from Plan 2 will be assessed under 99B of the ITAA 1936.