Assessability of Japanese age pension paid to resident of Australia

Is a Japanese age pension received by an Australian resident taxpayer assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. A Japanese age pension received by an Australian resident taxpayer is assessable under subsection 6-5(2) of the ITAA 1997.

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

The taxpayer receives an age pension from Japan.

The pension is paid by the Japanese government.

The pension received by the taxpayer is not in respect of previous employment or service with the Japanese Government.

The pension is exempt from tax in Japan due to the operation of various exemptions in the Japanese income tax law.

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, whether in or out of Australia, during the income year.

Pensions are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining liability to Australian tax on foreign sourced 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).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 and the Income Tax Assessment Act 1936 (ITAA 1936) so that those Acts are read as one.

Schedule 6 to the Agreements Act contains the double tax agreement and the protocol between Australia and Japan (the Japanese Agreement). The Japanese Agreement operates to avoid the double taxation of income received by Australian and Japanese residents.

Article 13(1) of the Japanese Agreement provides that pensions derived from sources in Japan by a resident of Australia will be exempt from tax in Japan.

The Japanese Agreement does not exclude the pension income from being taxable in Australia.

Accordingly, as the taxpayer is a resident of Australia, the Japanese age pension received by the taxpayer is assessable under subsection 6-5(2) of the ITAA 1997.