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Is the annual deductible amount of the UPP in relation to a foreign pension which commenced prior to 1 July 1983 calculated in accordance with section 26AA of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes, the annual deductible amount of the UPP in relation to a foreign pension which commenced prior to 1 July 1983 is calculated in accordance with section 26AA of the ITAA 1936.

The taxpayer receives a pension from a retirement fund established and managed outside Australia.

The commencement date of the pension was prior to 1 July 1983.

The pension is payable for life.

The taxpayer has provided the total amount of contributions, other than employer contributions, paid to the retirement fund towards the purchase of the pension.

The international tax agreement between Australia and the country in which the retirement fund is established and managed provides that the pension is taxable in Australia.

Former section 26AA of the ITAA 1936 allows the UPP of an annuity to be excluded from the assessable income of the taxpayer for pensions commencing prior to 1 July 1983.

Under former paragraph 26AA(2)(a) of the ITAA 1936 for an annuity payable until the death of the taxpayer, or for a term that will not end before his death, the amount of UPP to be excluded from the assessable income of the taxpayer is calculated by the formula: UPP ÷ life expectancy of taxpayer at commencement of pension

Pursuant to subsection 26AA(4) of the ITAA 1936, the UPP includes the amount the recipient of the pension or annuity has outlaid to purchase the pension or annuity, for which a tax deduction or rebate has not been allowed or is not allowable. Contributions made by any other person, other than the recipient, will not be taken into account in calculating the UPP.

Former Regulation 4A of the Income Tax Regulations 1936 (ITR 1936) stated that, for the purposes of the definition of life expectancy of the taxpayer in paragraph 26AA(2)(a) of the ITAA 1936, the Australian Life Tables are to be used. A person receiving an annuity or pension arising from the death of the original pensioner cannot claim a deduction for the UPP as the person would not have contributed to the purchase price.