Private ruling: Invalid's benefit from overseas country
Published: May 2012
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the invalid's benefit paid to you by the government of an overseas country assessable income in Australia? | A1: Yes

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You receive an invalid's benefit from the government of an overseas country, which is paid monthly. You are not a resident of the overseas country for their taxation purposes. Your spouse is also a resident of Australia. You and your spouse lived in the overseas country before coming to Australia. Your spouse is incapacitated and receives an invalid's benefit from the government of the overseas country. You also receive the invalid's benefit as you are the spouse and carer. Both you and your spouse are under pension age. The invalid's benefit is not taxable in the overseas country. You provided a letter from the relevant government department of the overseas country which states that the payments made to you were portable amounts, and that no tax was paid on them.

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

Reasons for decision: Summary: The invalid's benefit paid by the government of the overseas country is ordinary income, so is included in assessable income under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997). There are no provisions in the income tax law that exempt the payments from tax in Australia. | Detailed Reasoning - Detailed reasoning: Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes the ordinary income derived from all sources, whether in or out of Australia, during the income year. Pensions are ordinary income and are therefore generally assessable income under subsection 6-5(2) of the ITAA 1997. In determining liability to Australian tax on foreign sourced income received by a resident it is necessary to consider not only the income tax laws but also any applicable double tax agreement listed in the International Tax Agreements Act 1953 (the Agreements Act). Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions). Australia has signed a double tax agreement with the relevant overseas country (the Convention). The Convention operates to avoid the double taxation of income received by Australian residents and residents of the overseas country. One of the articles of the Convention deals with pensions. The term 'pension' is not defined in any of the double tax agreements (including the Convention). Taxation Determination TD 93/151 states that for the purposes of the pension articles in Australia's double tax agreements, the term 'pension' has its ordinary meaning as defined in the Macquarie Dictionary. That is, a fixed periodical payment made in consideration of past services, injury or loss sustained. The invalid's benefit that you receive from the government of the overseas country is a periodic payment and is paid in consideration of injury or loss (your spouse's incapacity). It is a pension within the ordinary meaning of that term and therefore falls within the operation of the pensions article of the Convention. The pension article of the Convention provides that pensions (including government pensions) and other similar periodic remuneration sourced in the overseas country and paid to a resident of Australia are taxable only in Australia. The pension article provides further that such income arising in the overseas country (other than payments of portable superannuation or portable veteran's pension or equivalent portable payments arising in the overseas country) shall not be taxed in Australia to the extent that such income would not be subject to tax in the overseas country if the recipient were a resident of the overseas country. However, this exemption from tax in Australia does not apply to you as the amounts paid were portable amounts. That is, they were portable payments arising in the overseas country. Under the pension article of the Convention, the invalid's benefits that you receive from the government of the overseas country are taxable only in Australia. As the invalid's benefits are ordinary income, they are included in assessable income under subsection 6-5(2) of the ITAA 1997. | Detailed Reasoning - Your arguments: You have argued that the invalid's benefit is equivalent to the invalidity pension in Australia, which is not taxable as long as the recipients are under pension age. There are specific provisions in the income tax law which exempt certain Australian Government pensions from tax. Those exempt pensions include: a disability support pension paid by Centrelink to a person who is under age pension age an invalidity service pension where the veteran is under age pension age. However, these provisions only apply to Australian Government pensions. There are no provisions in the income tax law that exempt pensions of a similar nature paid by the government of the overseas country.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.