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Is a South African disability pension received by an Australian resident taxpayer and first payable after 1 July 1983, assessable under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. A South African disability pension received by an Australian resident taxpayer and first payable after 1 July 1983 is assessable under section 27H of the ITAA 1936.

The taxpayer is an Australian resident in receipt of a disability pension from South Africa paid under a personal insurance cover.

The taxpayer could not work because of injuries suffered from an accident and is paid a monthly benefit under the policy to replace lost earnings.

The pension was first payable after 1 July 1983.

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.

As the taxpayer's disability pension is received from South Africa, it is also necessary to look at the Australia-South Africa Double Tax Agreement (the DTA) which is contained in Schedule 42 to the International Tax Agreements Act 1953 (the Agreements Act).

Paragraph (1) of Article 18 (the Pensions and Annuities Article) of the Agreements Act provides that pensions or annuities derived from South Africa by a resident of Australia will be exempt from tax in South Africa to the extent that the pension or annuity is taxable in Australia.

Subsection 27H(1) of the ITAA 1936 provides that annuities first payable on or after 1 July 1983 are included in the assessable income of the taxpayer with the undeducted purchase price excluded if the annuity was purchased.

The Australian resident taxpayer has received a South African disability pension that was first payable on or after 1 July 1983. The assessable income of the taxpayer will include the disability pension under subsection 27H(1) of the ITAA 1936 and accordingly will be exempt from tax in South Africa under the DTA.