Issue
Is a United States Air Force pension received by an Australian resident taxpayer assessable under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
No. A United States Air Force pension received by an Australian resident taxpayer is not assessable under section 6-5 of the ITAA 1997.
Facts
The taxpayer is a citizen of the United States of America who has retired from the United States Air Force.
The taxpayer is a resident of Australia for taxation purposes and receives a United States Air Force pension.
Reasons for Decision
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. 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. Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that both Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except for some limited provisions).
Article 19 of Schedule 2 (the Australia - United States Convention) to the Agreements Act provides that wages, salaries and similar remuneration, including pensions, paid from the funds of the United States of America for labour or personal services performed as an employee in the discharge of governmental functions of the United States of America shall be exempt from tax in Australia.
The United States Air Force pension received by the taxpayer is exempt income and therefore not assessable in Australia under section 6-5 of the ITAA 1997.