Assessability of Veterans' Affairs pension paid to a Thai resident

Is a war veteran's pension paid by the Commonwealth Department of Veterans' Affairs to a resident of Thailand assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. Even though the war veteran's pension paid to a resident of Thailand is assessable under subsection 6-5(3) of the ITAA 1997, Article 18 of Schedule 30 to the International Tax Agreements Act 1953 (the Agreements Act) applies and the pension income is not taxable in Australia.

The taxpayer is a resident of Thailand for tax purposes.

The taxpayer receives war veteran's pension payments from the Commonwealth Department of Veterans' Affairs in Australia.

The taxpayer is a citizen of Australia and not of Thailand.

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non resident taxpayer includes ordinary income derived directly or indirectly from all Australian sources during the income year.

Pension income is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

In determining liability to tax on Australian sourced income received by a non resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the Agreements Act.

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

Schedule 30 to the Agreements Act contains the double tax agreement between Australia and Thailand (the Thai Agreement). The Thai Agreement operates to avoid the double taxation of income received by Australian and Thailand residents.

Article 18 of the Thai Agreement provides that, subject to Article 19, a pension paid to a resident of Thailand is only taxable in Thailand.

Paragraph (2) of Article 19 of the Thai Agreement provides that a pension paid by Australia in respect of services rendered in the discharge of governmental functions shall only be taxable in Australia. However, a pension is taxable only in Thailand if the person is a resident of, and a citizen or national of Thailand. 'Services rendered in the discharge of governmental functions' are principally of an employment nature and the pension must relate to that employment. This includes, for example, ComSuper pension payments to a person who was employed in the Australian Public Service.

The taxpayer is a resident of Thailand receiving a war veteran's pension from the Australian Commonwealth Department of Veterans' Affairs. The pension does not relate to services rendered in the discharge of governmental functions. Therefore paragraph (2) of Article 19 of the Thai Agreement does not apply.

Consequently, as the taxpayer is a resident of Thailand, Article 18 of the Thai Agreement applies and the pension income is not taxable in Australia. The pension income is therefore not assessable under subsection 6-5(3) of the ITAA 1997.