Assessability of an Australian sourced pension paid to a resident of Canada

Is the taxpayer, a resident of Canada, assessable on their Australian sourced superannuation pension under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The Canadian resident taxpayer is assessable on their Australian sourced superannuation pension under section 6-5 of the ITAA 1997 but the rate of tax is limited to a maximum rate of 15 per cent.

The taxpayer is a resident of Canada.

The taxpayer received an Australian sourced superannuation pension from which Australian tax was deducted.

Subsection 6-5(3) of the ITAA 1997 provides that ordinary income derived by a non resident directly or indirectly from Australian sources, as well as other ordinary income included by a provision on a basis other than having an Australian source, is assessable. Statutory income from all Australian sources, or included by a provision on a basis other than having an Australian source, is also included in a non resident's assessable income under subsection 6-10(5) of the ITAA 1997.

Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list is section 27A of the Income Tax Assessment Act 1936 (ITAA 1936) which provides that annuities and superannuation pensions are included in assessable income.

In determining liability to Australian tax on Australian sourced income received by a non resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).

Schedule 3 to the Agreements Act contains the double tax agreement between Australia and Canada (the Canadian Convention). The Canadian Convention operates to avoid the double taxation of income received by Australian and Canadian residents.

Article 18 of the Canadian Convention provides that an Australian pension received by a Canadian resident is subject to tax in Canada. However, the Australian pension is also subject to tax in Australia but the rate of tax is not to exceed the lesser of 15 per cent or the tax that would be payable in respect of the pension had the taxpayer been a resident of Australia.

Subparagraph (2)(a) of Article 23 of the Canadian Convention deals with the relief of double taxation and provides that, subject to the provisions of the law of Canada, a credit for any tax paid in Australia will be allowed against Canadian tax payable on income from Australian sources.

The Australian pension received by the taxpayer is included in their assessable income under section 6-5 of the ITAA 1997. The tax payable on this income will however be limited to the lesser of 15 per cent or the tax payable in respect of the pension had the taxpayer been a resident of Australia. The taxpayer will be entitled to a refund of any Australian tax paid in excess of 15 per cent. The taxpayer will be able to claim the Australian tax paid as a credit against any Canadian tax payable.