Assessability of UK disability pension - first payable after 1 July 1983

Is a United Kingdom (UK) disability 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)?

Yes. A UK disability pension received by an Australian resident taxpayer and first payable after 1 July 1983 is assessable under section 27H of the ITAA 1936.

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer is in receipt of an disability pension (for industrial injury) from the UK.

The taxpayer receives the pension every 13 weeks and it was first payable after 1 July 1983.

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.

Paragraph (1) of Article 14 of Schedule 1 (the Australia - United Kingdom Agreement) to the Agreements Act provides that any pension or annuity derived from the UK by a resident of Australia will be exempt from tax in the UK. The pension or annuity will therefore 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 UK disability pension which is not taxable in the UK. 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.