Pension Tax Offset - receipt of exempt pension

Is the taxpayer eligible for a Pension Tax Offset (PTO) under section 160AAA of the Income Tax Assessment Act 1936 (ITAA 1936)?

No, the taxpayer is not eligible for a Pension Tax Offset (PTO) under section 160AAA of the ITAA 1936.

The taxpayer received a Department of Veterans Affairs (DVA) invalidity service pension during the income year.

The taxpayer did not receive any other Commonwealth Government income support payment.

The taxpayer is not of pension age within the meaning of either the Social Security Act 1991 (SSA 1991) or the Veterans' Entitlements Act 1986 (VEA 1986).

Eligibility for a PTO is determined under section 160AAA of the ITAA 1936. Subsection 160AAA(2) provides that a taxpayer will be entitled to a PTO where their assessable income includes an amount of rebatable pension.

Rebatable pension is defined in subsection 160AAA(1) to include a pension, allowance or benefit paid under the VEA 1986 (other than Part VII). The DVA invalidity service pension is paid under Part III of that Act and so qualifies as a rebatable pension.

However, section 52-65 of the Income Tax Assessment Act 1997 provides that an invalidity service pension paid to a recipient who is not of pension age, within the meaning of the SSA 1991, is exempt from income tax. Exempt income is not included in the assessable income of a taxpayer.

The taxpayer is not of pension age and so the invalidity service pension is exempt and is not included in the taxpayer's assessable income. It follows that the taxpayer's assessable income does not include an amount of rebatable pension, and so the eligibility requirements set out in subsection 160AAA(2) of the ITAA 1936 are not satisfied. The taxpayer will therefore not be entitled to a PTO.