Private ruling: Foreign source income
Date of advice: 15 June 2017
Published: October 2017
Ruling period: Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021 | Year ending 30 June 2022
Date scheme commenced: 1 July 2017

Ruling: Q1: As an Australian resident for tax purposes will your annuity payments that are sourced in the in Country X be assessable in Australia? | A1: Yes

Relevant facts and circumstances: You permanently relocated to Australia from Country X in 2002. You are an Australian resident for tax purposes from 2002. You are a citizen of the Country X. You made contributions to a retirement plan in your working life. This was not an employer sponsored plan. The plan has provided you retirement benefits through the purchase of an annuity contract. You receive periodical annuity payments from the Insurance Company A. Company A is a resident company of Country X. An actuarially determined minimum pension must be taken each year which can be paid to you at a determined frequency in that year. The retirement plan is not a superannuation fund for Australian tax law purposes. Further contributions to the fund cannot be made after retirement. Your entitlements can be taken as a lump sum at any time.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 27H | International Tax Agreements Act 1953 Section 4 | International Tax Agreements Act 1953 Schedule 2 | International Tax Agreements Act 1953 Schedule 2A, | International Tax Agreements Act 1953 Schedule 2 Article18(3) | International Tax Agreements Act 1953 Schedule 2 Article 18(5) | Income Tax Assessment Act 1997 Subsection 6-10(4) | Income Tax Assessment Act 1997 Section 10-5

Reasons for decision: Summary: Subsection 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes statutory income from all sources, whether in or out of Australia. Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list is section 27H of the Income Tax Assessment Act 1936 which provides that annuity amounts are included in assessable income. In determining liability to Australian tax on foreign sourced income received by a resident taxpayer, it is necessary to consider not only the income tax laws but also any applicable double tax agreement 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. Schedule 2 to the Agreements Act contains the double tax convention between Australia and Country X (Country X Convention). Schedule 2A of the Agreements Act contains an amending Protocol between Australian and Country X (Country X Protocol.). The County X Convention and Country X Protocol operate to avoid double taxation of income received by Australian and Country X residents. Paragraph (3) of Article 18 of the Country X Convention provides that annuities paid to an individual who is a resident of Australia shall be taxable only in Australia. Paragraph (5) of Article 18 of the Country X Convention defines 'annuities' as stated sums paid periodically at stated times during life, or during a specified or ascertainable number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered or to be rendered). The annuity received by you from the retirement plan comes within the definition of an 'annuity' under paragraph (3) of Article 18 of the Convention. As you are a resident of Australia for income tax purposes, paragraph (3) of Article 18 of the Country X Convention applies and the annuity income received from Country X will form part of your assessable income under subsection 6-10(4) of the ITAA 1997.