Private ruling: Foreign pension
Date of advice: 16 September 2020
Published: October 2020
Ruling period: Year ended 30 June 2020
Date scheme commenced: 1 July 2019

Ruling: Q1: Is the Country Z pension received as a result of past employment assessable income in Australia? | A1: Yes.

Relevant facts and circumstances: You are a permanent resident of Australia. You are not an Australian citizen. You receive a pension from the Country Z government due to your past employment in Country Z. You pension is not received in respect of government service.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | International Tax Agreements Act 1953 Section 4 | International Tax Agreements Act 1953 Section 5 | Income Tax Assessment Act 1936

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. 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 (DTA). 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 section 5 of the Agreements Act (Country Z Agreement). The Country Z Agreement operates to avoid the double taxation of income received by residents of Australia and Country Z. The Country Z Agreement states at Article XX: Subject to the provisions of paragraph (2) of Article XY, 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. Paragraph (2)(a) of Article XY states: (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. Therefore, as the income derived from your pension in Country Z is not received in respect of government service, it is assessable in Australia under article 18 of the Country Z Agreement. It is assessable in Australia under Subsection 6-5(2) of the ITAA 1997.