Private ruling: Assessable income - lump sum payment
Date of advice: 28 October 2025
Published: 15 December 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the lump sum payment from the Pension Scheme assessable income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: While you were in Country X you joined their military forces (the Forces). Some years later you achieved a higher rank. When you joined the Forces prior to a specified date (Date 1), you automatically joined a pension scheme they offered (the Pension Scheme) which was calculated on your final rank and length of reckonable services (the actual years and days that count towards your pension). The Pension Scheme: • offered several types of pensions including - Pension A for when you leave the Forces at a specified age before turning 60 years of age, and had completed at least a specified number of years (X years) if you were at a specified rank, or a specified number of years (Y Years) as another rank; or - Pension B for when you leave the Forces prior to completing the required years to receive Pension A, with a pension being kept until you reached pension benefit age, which was 60 years of age for service before Date 1. Pension B entitled the recipient to an annual pension paid monthly basis from the date the pension benefit age was reached onwards. In addition to the annual pension, the recipient would also receive a one-off pension lump sum that will be a specified number of times your annual pension. Pension B is not automatically paid and a claim to receive the pension should be lodged with the scheme administrator. • The pension scheme is a type of plan to help you save money for later life, providing a regular monthly income during your retirement. • The pension provided in the Pension Scheme is free, and you make no contributions. After some years you were discharged from the Forces. At that time, you had not been at your final rank for the required period to be eligible for Pension A. You ceased being a resident of Country X for tax purposes shortly after, travelling to Australia. You obtained full-time employment in Australia the following year and became a citizen of Australia after some years. You reached the pension benefit age, and you became eligible to receive Pension B. You applied for Pension B, which was approved, and you were awarded the following benefits: • A specified amount per annum; and • A specified lump sum amount (the lump sum). The lump sum amount was paid into your Australian bank account during the ruling period. You receive ongoing monthly pension payment amounts in relation to the Pension Scheme.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 6-5 | International Tax Agreements Act 1953

Reasons for decision: Detailed Reasoning - Assessability of foreign lump sum pension amount: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer of Australia 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. | Detailed Reasoning - Double taxation agreements: In determining liability to Australian tax on foreign sourced income it is necessary to consider not only the income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (the Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except in some limited situations). The double taxation agreement (DTA) between Australia and Country X includes the following about the taxation of pensions: 1. Pensions (including government pensions) and annuities paid to a resident of a Contracting State shall be taxable only in that State. 2. The term "annuity" means a stated sum payable periodically to an individual 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. | Detailed Reasoning - Application to your situation: You reached the pension benefit age and had applied for Pension B, which was approved. As part of your Pension B entitlements, you received the lump sum amount that was calculated as being several times your annual pension amount as at the date you reached the pension benefit age. As outlined above, foreign pension amounts are assessable as ordinary income under subsection 6-5(2) of the ITAA 1997. The DTA between Country X and Australia provides that foreign pension amounts are assessable only in Australia if you are an Australian resident when you receive those amounts. The lump sum amount is not capital in nature; therefore, the capital gains tax provisions will not apply in relation to the taxation treatment of the lump sum amount. There is no offset, rebate, deduction and/or any legislation that would enable you to not be assessed on all, or any part, of the lump sum amount. Therefore, the lump sum amount you have received in relation to Pension B will be assessable under subsection 6-5(2) of the ITAA 1997 and needs to be included in your income tax return for the ruling period, being the income year in which you received the lump sum amount.