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

Is the Australian state government service pension received by a Chinese 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 state government service pension received by a Chinese resident who is an Australian citizen is assessable under subsection 6-5(3) of the ITAA 1997.

The taxpayer is an Australian citizen.

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

The taxpayer is a resident of China for taxation purposes.

The taxpayer receives a state government pension.

The taxpayer receives the pension in respect of previous services rendered to the state government in the capacity of an employee.

The pension is paid from a superannuation fund operated by the state government.

The taxpayer is not a citizen or national of China.

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 28 to the Agreements Act contains the double tax agreement between Australia and the People's Republic of China (the Chinese Agreement). The Chinese Agreement operates to avoid the double taxation of income received by Australian and Chinese residents.

Article 18 of the Chinese Agreement specifically deals with the taxation of pensions. This Article provides that, subject to Article 19 of the Chinese Agreement, China has the sole taxing rights over pensions paid to an individual who is a resident of China.

Article 19(2) of the Chinese Agreement provides that:

Any pension paid by, or out of funds created by, Australia or a political subdivision or local authority of Australia to an individual in respect of services rendered to Australia or subdivision or authority shall be taxable only in Australia.

However, any such pension shall be taxable only in China if the individual is a resident of, and a citizen or national of, China.

The taxpayer receives a pension in respect of services rendered to an Australian state government and is not a citizen or national of China. The pension is paid from a superannuation fund operated by an Australian state government. Accordingly Article 19(2) of the Chinese Agreement provides that the pension shall be taxable only in Australia.

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