Issue
Is United Kingdom (UK) annuity income 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)?
Decision
Yes. UK annuity income received by an Australian resident taxpayer and first payable after 1 July 1983 is assessable under section 27H of the ITAA 1936.
Facts
The taxpayer is a resident self funded retiree who is in receipt of annuity income from the UK.
The annuity was first payable after 1 July 1983.
Reasons for Decision
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 a 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 (1) of Article 14 of Schedule 1 (the Australia - United Kingdom Agreement) 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.
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 annuity income from the UK. The annuity income is not taxable in the UK in accordance with the Agreements Act. As the annuity was first payable on or after 1 July 1983, the assessable income of the taxpayer will include the annuity income reduced by any undeducted purchase price under subsection 27H(1) of the ITAA 1936.
International Tax Agreements Act 1953
Schedule 1, paragraph (1) of Article 14