ATO Interpretative Decision

ATO ID 2002/337

Income Tax

• This ATO ID contains references to repealed provisions, some of which may have been re-enacted or remade. The ATO ID is current in relation to the re-enacted or remade provisions.
  Australia's tax treaties and other agreements except for the Taipei Agreement are set out in the Australian Treaty Series. The citation for each is in a note to the applicable defined term in sections 3AAA or 3AAB of the International Tax Agreements Act 1953.
  This document has changed over time. View its history.

Issue

Is the Chinese government pension paid to an Australian resident taxpayer included in their assessable income under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision

No. The Chinese government pension paid to an Australian resident taxpayer is not included in their assessable income under section 27H of the ITAA 1936 as they are not a citizen or national of Australia.

Facts

The taxpayer is an Australian resident for tax purposes but is not an Australian citizen or national.

The taxpayer receives a Chinese government pension which was for services rendered to China.

Reasons for Decision

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 during the income year.

Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of an Australian resident includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) of the ITAA 1997).

Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list is section 27H of the ITAA 1936 which provides that annuities and pensions paid from a foreign superannuation fund or foreign superannuation scheme for the payment of superannuation benefits are included in assessable income.

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 contained in the International Tax Agreements Act 1953 (Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the 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).

Schedule 28 to the Agreements Act contains the double tax agreement between Australia and China (Chinese Agreement). The Chinese Agreement operates to avoid the double taxation of income received by Australian and Chinese residents.

Article 19 of the Chinese Agreement deals with Government Service Pensions. Subparagraph (2)(a) of Article 19 provides that a government service pension paid by China to an individual in respect of services rendered to China will be taxable only in China. Subparagraph (2)(b) of Article 19 provides that a Chinese government service pension will be taxable only in Australia if the taxpayer is resident of Australia and a citizen or national of Australia.

Although the taxpayer is a resident of Australia they are not a citizen or national of Australia. Accordingly, the Chinese government service pension will be subject to tax only in China and does not form part of the taxpayer's assessable income under section 27H of the ITAA 1936.

Legislative References:
Income Tax Assessment Act 1936
   section 27H

Keywords
Foreign pension income
Double tax agreements
Foreign income
China

Business Line:  Small Business/Individual Taxpayers

Date of publication:  28 March 2002

ISSN: 1445-2782