Assessability of a foreign government pension - redirected at the taxpayer's direction to a non resident - no Double Tax Agreement applies.

Is the taxpayer assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) on a foreign government pension which they are entitled to receive, but which they have directed be paid to a non resident?

Yes. The taxpayer is assessable on the foreign government pension under section 6-5(2) of the ITAA, notwithstanding that they have directed that the amount be paid to a non resident. Under subsection 6-5(4) of the ITAA 1997 the pension is considered to be received by the taxpayer as soon as it has been applied as directed by the taxpayer.

The taxpayer was born overseas and is currently an Australian resident.

The taxpayer was granted a pension by the government of a foreign country. The pension was payable as a result of the death of the taxpayer's relative during a time of political violence in the foreign country.

The pension is paid in regular monthly amounts. The taxpayer has directed that the payments be made to a resident of the foreign country on the taxpayer's behalf.

The person to whom the payments are made is a not a resident of Australia for tax purposes.

There is no double tax agreement between Australia and the foreign country.

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.

Subsection 6-5(4) of the ITAA 1997 provides that a taxpayer is taken to have received, and therefore derived, an amount of ordinary income as soon as it is dealt with on their behalf and as directed by them.

The foreign government pension is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining liability to Australian tax on foreign source income 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). However there is no applicable double tax agreement and therefore the income tax laws will govern the assessability of this pension.

The taxpayer was entitled to receive the pension but has directed that it be paid to a non resident. The foreign government has dealt with this pension on the taxpayer's behalf and paid it to the specified non resident.

Under subsection 6-5(4) of the ITAA 1997 the taxpayer is taken to have received, and therefore derived, the pension. The pension will therefore be included in their assessable income under subsection 6-5(2) of the ITAA 1997.