Assessability of an Indian government service pension received by a resident taxpayer

Is an Australian resident taxpayer's Indian sourced government service pension assessable under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)?

Yes. The Australian resident taxpayer's Indian sourced government service pension is assessable under section 27H of the ITAA 1936.

The taxpayer is an Australian resident for taxation purposes.

The taxpayer is an Australia citizen.

The taxpayer is retired and receives a government service pension from the Indian government.

Section 6-5 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, 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.

Section 10-5 of the ITAA 1997 lists provisions about particular kinds of 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 superannuation schemes for the payment of superannuation benefits 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 law 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 35 to the Agreements Act contains the double tax agreement between the government of Australia and the government of the Republic of India (Indian Agreement).

Article 19 of the Indian Agreement refers to the basis of taxation for government service. Under this article, pensions paid from the funds of the Indian government, for services performed by an employee of the Indian government in discharging government functions of India, to an individual who is an Australian citizen and resident of Australia, is taxable only in Australia.

As the taxpayer is an Australian citizen and also a resident of Australia receiving an Indian government service pension, Australia has the sole right under the Indian Agreement to tax the income. The taxpayer's Indian government service pension is therefore assessable under section 27H of the ITAA 1936.