Foreign Pension from the Australian Embassy in USA - whether assessable to an Australian resident

Is the monthly superannuation pension paid to an Australian resident taxpayer, from the Australian Embassy in the United States of America (USA), included in their assessable income under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) ?

Yes. The monthly superannuation pension paid to an Australian resident taxpayer, from the Australian Embassy in the USA, is included in their assessable income under section 27H of the ITAA 1936.

The taxpayer was formerly a resident of the USA and they worked for the Australian Embassy in that country.

The taxpayer now lives in Australia and is a resident of Australia for tax purposes.

The taxpayer receives a monthly superannuation pension from the Australian Embassy in the USA.

The superannuation is paid out of funds provided to the Embassy by the Australian government.

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.

Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. The assessable income of an Australian resident includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) of the ITAA 1997).

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

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

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

Schedule 2 to the Agreements Act contains the double tax agreement between Australian and the USA (the USA Convention). The USA Convention operates to avoid the double taxation of income received by Australian and USA residents.

Article 19 of the USA Convention deals with Governmental remuneration. It provides that wages, salary and similar remuneration, including pensions, paid from the funds of the Australia government for Labor or personal services performed as an employee in discharge of governmental functions to an Australian citizen shall be exempt from tax in the USA.

The employees at an Australian Embassy perform services in discharge of governmental functions.

The taxpayer's pension is paid, from funds provided by the Australian government, in respect of their work at the embassy and therefore the pension will be exempt from tax in the USA.

The taxpayer will be assessable on the income received from the pension under section 27H of the ITAA 1936.