Assessability of UK Police Pension - first payable prior to 1 July 1983

Is a United Kingdom (UK) Police pension received by an Australian resident taxpayer and first payable prior to 1 July 1983, assessable under subsection 26AA(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. A UK Police pension received by an Australian resident taxpayer and first payable prior to 1 July 1983 is assessable under subsection 26AA(1) of the ITAA 1936.

The taxpayer has been receiving a pension, which was first payable prior to 1 July 1983, from the UK Police Pension Scheme.

The taxpayer is now an Australian resident and the payments are made in the form of a superannuation pension/annuity on a monthly basis.

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. However, if an amount is exempt income it is not included in the assessable income of the taxpayer (section 6-15 of the ITAA 1997).

Agreements that Australia has with various countries under the International Tax Agreements Act 1953 (the Agreements Act) operates to prevent the double taxation of income.

Paragraph 14(1) of Schedule 1 to the Agreements Act provides that any pension or annuity derived from the UK by a resident of Australia will be exempt from tax in the UK. The pension or annuity will therefore be taxable in Australia.

Former subsection 26AA(1) of the ITAA 1936 provides that annuities first payable to a taxpayer prior to 1 July 1983 are included in the assessable income of the taxpayer with the undeducted purchase price excluded if the annuity has been purchased. Although subsection 26AA(1) of the ITAA 1936 has been repealed, transitional provisions apply to continue to assess annuities which first became payable before 1 July 1983.

The Australian resident taxpayer has received a pension from the UK Police Pension Scheme which is not taxable in the UK. As the pension was first payable prior to 1 July 1983, the assessable income of the taxpayer will include the pension reduced by the undeducted purchase price under subsection 26AA(1) of the ITAA 1936. Note: there are no provisions in the Agreements Act, the ITAA 1936 or the ITAA 1997 which specifically exempt the pension from tax in Australia.