Issue
Is an annuity received by an Australian resident taxpayer from a UK retirement fund assessable under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. The annuity received by an Australian resident taxpayer from a UK retirement fund is assessable under section 27H of the ITAA 1936.
Facts
The taxpayer is a resident of Australia for income tax purposes.
The taxpayer receives an annuity from a UK retirement fund.
The UK retirement fund is an eligible non-resident non-complying superannuation fund.
The annuity was first payable after 1 July 1983.
The taxpayer receives the annuity in return for adequate and full consideration provided by the taxpayer.
Reasons for Decision
Section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer's assessable income includes statutory income amounts which are not ordinary income but are included in assessable income by another provision.
The assessable income of an Australian resident, includes statutory income from all sources, whether in or out of Australia (subsection 6-10(4) of the ITAA 1997).
Section 10-5 of the ITAA 1997 lists the provisions about assessable income. Included in this list is section 27H of the ITAA 1936 which provides that annuities and superannuation pensions are included in assessable income.
In determining liability to Australian tax of foreign sourced income received by a 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 1936 and ITAA 1997 so that those Acts are read as one.
Schedule 1 to the Agreements Act contains the double tax agreement between Australia and the United Kingdom of Great Britain and Northern Ireland and the Notes to the agreement (the 2003 UK Convention). The 2003 UK Convention operates to avoid the double taxation of income received by Australian and UK residents.
The 2003 UK Convention entered into force on 17 December 2003, and in the case of Australia, applies to income or gains for the income year beginning on 1 July 2004 and thereafter.
Article 17(1) of the 2003 UK Convention provides that pensions (including government pensions) and annuities paid to a resident of Australia shall be taxable only in Australia.
Article 17(2) of the 2003 UK Convention provides that the term 'annuity' means a stated sum payable periodically to an individual at stated times during life during a specified or ascertainable period of time, under an obligation to make the payments in return for adequate and full consideration in money or money's worth.
The UK annuity received by the taxpayer is an annuity within the meaning of Article 17(2) of the 2003 UK Convention and is taxable only in Australia under Article 17(1) of the 2003 UK Convention.
Therefore, the UK annuity received by the taxpayer is included in the taxpayer's assessable income under section 27H of the ITAA 1936 and forms part of the taxpayer's statutory income under subsection 6-10(4) of the ITAA 1997.