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Is a Canadian aged pension derived by an Australian resident taxpayer assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. A Canadian aged pension derived by an Australian resident taxpayer is assessable under section 6-5 of the ITAA 1997 however a foreign tax credit will be allowed for foreign tax paid.

The taxpayer is an Australian resident for income tax purposes.

The taxpayer receives an aged pension from Canada.

The taxpayer has paid tax on this income in Canada at the rate of 15 per cent.

Subsection 6-5(2) of the 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.

An aged pension is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining liability to Australian tax on foreign source income 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).

Schedule 3 to the Agreements Act contains the double tax agreement between Australia and Canada (the Canadian Convention). The Canadian Convention operates to avoid the double taxation of income received by Australian and Canadian residents.

Article 18 of the Canadian Convention provides that a pension received by an Australian resident from Canada may be taxed in Australia. However, the Canadian pension is also subject to tax in Canada but the rate of tax is not to exceed 15 per cent.

Paragraph (1) of Article 23 of the Canadian Convention provides that, subject to the provisions of the law of Australia, a credit for any tax paid in Canada will be allowed against Australian tax paid on income from Canadian sources.

The Canadian pension received by the taxpayer is included in their assessable income under section 6-5 of the ITAA 1997. As foreign tax has been paid in relation to this pension, a foreign tax credit will be allowed. As the Canadian tax paid on the pension is less than the Australian tax that will be payable the taxpayer will be entitled to a full credit for the Canadian tax paid.