Assessability of an Australian sourced pension paid to a resident of The Philippines

Is the taxpayer's Australian sourced pension assessable in Australia under subsection 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The taxpayer's Australian sourced pension is not assessable in Australia under subsection 6-5(3) of the ITAA 1997 because of the operation of Article 18 of Schedule 14 to the International Tax Agreements Act 1953 (the Agreements Act).

The taxpayer is a resident of The Philippines and is a non-resident of Australia for tax purposes.

The taxpayer receives a pension from Australia.

Subsection 6-5(3) of the ITAA 1997 provides that ordinary income derived by a non-resident directly or indirectly from Australian sources, as well as other ordinary income included by a provision on a basis other than having an Australian source, is assessable. Statutory income from all Australian sources, or included by a provision on a basis other than having an Australian source, is also included in a non resident's assessable income under subsection 6-10(5) 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 Income Tax Assessment Act 1936 (ITAA 1936) which provides that annuities and superannuation pensions are included in assessable income.

In determining liability to Australian 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 1936 and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

Schedule 14 of the Agreements Act contains the double tax agreement between Australia and The Philippines (the Philippine Agreement). The Philippine Agreement operates to avoid the double taxation of income received by Australian and Philippine residents.

Article 18 of the Philippine Agreement deals with pensions and annuities. Paragraph (1) of Article 18 provides that an Australian sourced pension paid to an individual who is a resident of The Philippines shall be exempt from tax in Australia.

As the taxpayer is a resident of The Philippines, the Australian sourced pension they receive will not be assessable under section 6-5 of the ITAA 1997.