Issue
Is the taxpayer assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) on their United Kingdom (UK) War Widows Pension?
Decision
No. The taxpayer is not assessable under subsection 6-5(2) of the ITAA 1997 on their UK War Widows Pension as it is exempt from tax under section 53-20 of the ITAA 1997.
Facts
The taxpayer is a resident of Australia.
The taxpayer's spouse was a member of the UK armed forces who was discharged at the end of the Second World War.
The taxpayer's spouse has since died as a result of a condition contracted while a member of the armed forces.
The taxpayer is now entitled to receive a War Widows 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.
Section 6-15 of ITAA 1997 provides that if an amount is exempt income, it will be excluded from assessable income. Section 6-20 of the ITAA 1997 specifies that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 of another Commonwealth law.
Section 53-20 of the ITAA 1997 provides that payments made by the Government of the United Kingdom are exempt from tax in Australia if the payments are similar to payments under the Veterans' Entitlements Act 1986 that are exempt under Subdivision 52-B of the ITAA 1997; or payments similar to payments that are made because of the Veterans' Entitlements (Transitional Provisions and Consequential Amendments) Act 1986 and are exempt under subdivision 52-C of the ITAA 1997.
Section 52-65 of the ITAA 1997 contains a list of pensions or other payments made under the Veterans' Entitlements Act. Item 10.1 lists pensions for defence-caused death or incapacity as exempt.
The War Widows Pension the taxpayer receives from the United Kingdom is similar to the pension for defence caused death or incapacity paid under the Veterans' Entitlement Act which is listed as an exempt payment in Subdivision 52-B of the ITAA 1997. Therefore this pension income is exempt from tax in Australia under section 53-20 of the ITAA 1997 and does not form part of the assessable income of the taxpayer under subsection 6-5(2) of the ITAA 1997.