Issue
Is a German disability support pension 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. A German disability support pension 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 of Australia for taxation purposes and receives a disability support pension from the State Department in Germany.
The German disability support pension was paid after retrenchment from work due to ill health and was first payable after 1 July 1983.
Disability support pensions are exempt from tax in Germany.
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.
Article 18 of Schedule 9 (the Australia - German Agreement) to the Agreements Act provides that pensions or annuities paid from Germany to a resident of Australia will only 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 a German disability support pension which is not taxable in the Germany. As the pension was first payable on or after 1 July 1983, the assessable income of the taxpayer will include the disability pension under subsection 27H(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.