Assessability of Sri Lankan government service pension: Australian resident and citizen

Is a Sri Lankan government service pension received by an Australian resident taxpayer who is an Australian citizen assessable under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. A Sri Lankan government service pension received by an Australian resident taxpayer who is an Australian citizen is assessable under section 27H of the ITAA 1936.

The taxpayer is an Australian citizen and is also an Australian resident for income tax purposes.

The taxpayer receives a Sri Lankan government service pension for services rendered to the government.

Subsection section 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income also 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 pensions paid from a foreign superannuation fund or foreign scheme for paying superannuation benefits are included in assessable income.

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 (Agreements 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.

Schedule 31 to the Agreements Act contains the agreement between Australia and the Democratic Socialist Republic of Sri Lanka (Sri Lankan Agreement). The Sri Lankan Agreement operates to avoid the double taxation of income received by Australian and Sri Lankan residents.

Article 19 of the Sri Lankan Agreement deals with government service pensions. Subparagraph (2)(a) of Article 19 provides that any pension paid by Sri Lanka to an individual in respect of services rendered to Sri Lanka will be taxable only in Sri Lanka. However, subparagraph (2)(b) of Article 19 provides that a pension paid by Sri Lanka to an individual in respect of services rendered to Sri Lanka will be taxable only in Australia if the individual is a resident of, and a citizen or national of Australia.

The taxpayer is an Australian citizen and is also a resident of Australia for income tax purposes. Accordingly, the Sri Lankan government service pension forms part of the taxpayer's assessable income under section 27H of the ITAA 1936.