Issue
Is a pension received by a resident taxpayer in respect of previous employment with the Asian Development Bank (ADB), an international organisation based in the Philippines, assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The pension received by a resident taxpayer in respect of previous employment with the ADB, an international organisation based in the Philippines, is assessable under subsection 6-5(2) of the ITAA 1997.
Facts
The taxpayer is an Australian resident for income tax purposes.
The taxpayer was an employee of the ADB and received salary and wages in respect of that employment.
The ADB is an international organisation based in the Philippines.
The taxpayer receives a pension from the ADB in respect of their previous employment with the ADB.
The pension plan from which the taxpayer receives their pension is not a pension plan registered under Philippine law.
Reasons for Decision
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 during the income year.
A pension is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
However, subsection 6-15(2) of the ITAA 1997 provides that if an amount is exempt income then it is not assessable income.
Section 6-20 of the ITAA 1997 provides that an amount of ordinary income is exempt income if it is made exempt from income tax by a provision of the ITAA 1997 or another Commonwealth law.
The International Organisations (Privileges & Immunities) Act 1963 (the IO(P&I)A) is a Commonwealth law under which an international organisation, and persons engaged by it, may be accorded certain privileges and immunities including an exemption from tax.
Paragraph 6(1)(d) of the IO(P&I)A provides that the Regulations may confer any or all of the privileges and immunities set out: (i) in Part I of the Fourth Schedule upon a person who holds an office in an international organisation to which the Act applies (not being an office prescribed by the regulations to be a high office); and (ii) in Part II of the Fourth Schedule upon a person who has ceased to hold such an office.
The Asian Development Bank (Privileges & Immunities) Regulations 1967 (the ADB Regulations) have been made under the IO(P&I)A.
Regulation 6(1) of the ADB Regulations provide that subject to regulation 6(2), a person who holds an office in the ADB has the privileges and immunities specified in paragraphs 1, 2, 3, 4, 5 and 6 of Part I of the Fourth Schedule to the IO(P&I)A.
Regulation 6(3) of the ADB Regulations provide that a person who has ceased to hold an office in the ADB has the immunities specified in Part II of the Fourth Schedule to the IO(P&I)A.
As the taxpayer has ceased employment with the ADB, regulation 6(3) provides that they have the immunities set out in Part II of the Fourth Schedule to the IO(P&I)A. Part II of the Fourth Schedule does not provide an exemption from taxation on pensions received by the taxpayer in respect of previous employment with the ADB.
In Case 30/96 96 ATC 349; AAT Case 10,901 (1996) 32 ATR 1279, it was held that a person receiving a pension from an international organisation was considered a former, rather than a current, officer of the international organisation and as such was not entitled to the immunities in Part I of the Fourth and Fifth Schedules to the IO(P&I)A. Accordingly, the taxpayer's pension was not exempt from tax (see also paragraphs 13 and 14 of Taxation Ruling TR 92/14).
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 (the Agreements Act).
Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 so that those Acts are read as one.
Schedule 14 to 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 provides that a pension paid to an Australian resident shall be taxed only in Australia. However, pensions paid by a Philippine enterprise under a pension plan not registered under Philippine law may be taxed in the Philippines.
As the pension plan under which the taxpayer received their pension is not registered under Philippine law, the pension received by the taxpayer may be taxed by Australia and by the Philippines.
Article 24(1) of the Philippine Agreement provides that, subject to the provisions of the law of Australia, a credit for any tax paid in the Philippines will be allowed against Australian tax paid on income from Philippine sources.
As the taxpayer is a resident of Australia, the Philippine pension received by the taxpayer from previous employment with the ADB is included in their assessable income under subsection 6-5(2) of the ITAA 1997. Where foreign tax has been paid in relation to this pension, a foreign tax credit will be allowed.