Assessability of Romanian pension received by Australian resident

Is a pension received by an Australian resident from Romania assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. A pension received by an Australian resident from Romania is assessable under subsection 6-5(2) of the ITAA 1997.

The taxpayer is a resident of Australia for income tax purposes.

The taxpayer receives a pension from Romania.

The pension is a social security pension paid by the Romanian government.

Eligibility for the pension is based on the taxpayer's age and years of employment experience.

The taxpayer was not required to make any contributions in order to receive the pension.

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of an Australian resident includes all ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Pensions are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.

In determining liability to Australian tax of foreign sourced income received by an Australian 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 45 to the Agreements Act contains the double tax agreement and protocol between Australia and Romania (the Romanian Agreement). The Romanian Agreement operates to avoid double taxation of income received by Australian and Romanian residents.

Article 18(1) of the Romanian Agreement provides that pensions (including government pensions) and annuities paid to a resident of Australia shall be taxable only in Australia.

Accordingly, as the taxpayer is a resident of Australia, the pension received by the taxpayer from Romania is assessable under subsection 6-5(2) of the ITAA 1997.