Private ruling: Residency
Published: September 2013
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Question and answer | 1. Is the overseas country pension you receive assessable in Australia? | No | 2. Does Article X paragraph y of the income tax treaty (double tax agreement) between Australia and the overseas country apply to your pension income? | No.

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You are a citizen of an overseas country. You had a government job in the overseas country. You receive an overseas country pension which is not taxed in the overseas country. You receive the pension monthly. This pension is paid into a bank account in the overseas country and does not enter Australia.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | International Tax Agreements Act 1953 Section P | International Tax Agreements Act 1953 Section Q | International Tax Agreements Act 1953 Article R | International Tax Agreements Act 1953 Article S | International Tax Agreements Act 1953 Article X paragraph Y

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. 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 overseas country agreement is listed in section 5 of the Agreements Act. The agreement between Australia and the overseas country operates to avoid the double taxation of income received by residents of Australia and the overseas country. Article R of the overseas country agreement considers the tax treatment of pensions and annuities. It states: 1. A pension or an annuity, derived from sources within one of the Contracting States by an individual who is a resident of the other Contracting State, shall be exempt from tax in the first-mentioned Contracting State. 2. The term "annuity" means a stated sum payable periodically at stated times, during life or during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money's worth. 3. This Article shall not apply to a pension paid to an individual by the Government of the Commonwealth or of any State of the Commonwealth or the Government of the overseas country in respect of services rendered in the discharge of Governmental functions. The term 'services rendered in the discharge of governmental functions' means those services rendered by an employee or office-holder in the completion or performance of any functions undertaken by government. The pension you receive is for services rendered in the discharge of governmental functions. Accordingly, it is necessary to look at article S of the overseas country agreement (which covers remuneration related to the discharge of governmental functions) to determine if the pension is assessable. Article S of the overseas country agreement states remuneration paid by the Government of the overseas country to any individual for services rendered to that Government in the discharge of governmental functions shall be exempt from Australian tax, except where the individual is a resident of Australia and is not an overseas country citizen. In your case, your pension income is not assessable in Australia under article S of the overseas country agreement as you are a citizen of the overseas country. Article X paragraph Y of the overseas country agreement states: Where under this agreement income is relieved from tax in one of the Contracting States and, under the law in force in the other Contracting State, a person, in respect of the said income, is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the relief to be allowed under this Agreement in the first mentioned Contracting State shall apply only to so much of the income as is remitted to or received in the other Contracting State. Article X paragraph Y of the overseas country agreement does not apply to you as your pension income is not assessable in Australia under article S of the overseas country agreement.