Assessability of South African government pension received by an Australian resident

Is the South African government pension paid to an Australian resident taxpayer included in their assessable income under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)?

No. The South African government pension paid to an Australian resident taxpayer is not included in their assessable income under section 27H of the ITAA 1936.

The taxpayer is an Australian resident for tax purposes.

The taxpayer receives a South African government pension which was in respect of services rendered in the discharge of governmental functions in South Africa.

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (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.

Section 6-10 of the ITAA 1997 provides that a taxpayer's assessable income includes statutory income amounts that 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 those provisions about assessable income. Included in this list is section 27H of the ITAA 1936 which provides that annuities and pensions paid from a foreign superannuation fund or foreign scheme to provide superannuation benefits are included in assessable income.

In determining liability to Australian tax on 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 (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. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

Schedule 42 to the Agreements Act contains the double tax agreement and the protocol between Australia and South Africa (South African Agreement). The South African Agreement operates to avoid the double taxation of income received by Australian and South African residents.

Article 19(2)(a) of the South African Agreement provides that any pension paid by, or out of the funds created by South Africa, or a political subdivision or a local authority of South Africa to an individual in respect of services rendered in the discharge of governmental functions shall be taxable in South Africa. However, Article 19(2)(b) provides that such a pension shall be taxable only in Australia if the individual is a resident of, and a citizen or national of Australia; and the services in respect of which that pension is paid were performed in Australia.

As the services in respect of which that pension is paid were performed in South Africa, that pension shall not be taxable in Australia.

Accordingly, the South African government service pension will be subject to tax only in South Africa and does not form part of the taxpayer's assessable income under section 27H of the ITAA 1936.