Assessability of an Australian government service pension received by a US resident who is an Australian citizen

Is the Australian government service pension received by a United States (US) resident taxpayer who is an Australian citizen, assessable under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The Australian government service pension received by the US resident taxpayer is assessable under subsection 6-5(3) of the ITAA 1997 as Australia has sole taxing rights over a government service pension paid to an Australian citizen who is a resident of the US.

The taxpayer is a non-resident of Australia for taxation purposes.

The taxpayer is a resident of the US for taxation purposes.

The taxpayer receives a government service pension from Comsuper.

The taxpayer is an Australian citizen.

The taxpayer is not currently a US citizen.

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

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

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 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 2 to the Agreements Act contains the double tax convention between Australia and the US (the US Convention). Schedule 2A to the Agreements Act contains the United States Protocol (the US Protocol). The US Convention and the US Protocol operate to avoid the double taxation of income received by Australian and US residents.

Article 18 of the US Convention specifically deals with the taxation of pensions and annuities income. This Article provides that, subject to Article 19 of the US Convention, the US has the sole taxing rights over pensions and annuities income paid to an individual who is a resident of the US.

Article 19 of the US Convention provides that wages, salaries and similar remuneration, including pensions, paid from the funds of the Australian government for labour or personal services performed as an employee in the discharge of governmental functions to an Australian citizen, shall be taxable only in Australia.

Therefore, the Comsuper pension that the taxpayer receives will be assessable under subsection 6-5(3) of the ITAA 1997.