Issue
Is the Spanish disability pension received by a resident of Australia assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Decision
Yes. The Spanish disability pension received by a resident of Australia is assessable under subsection 6-5(2) of the ITAA 1997.
Facts
The taxpayer is an Australian resident for income tax purposes.
The taxpayer receives a disability pension from the Spanish Government.
The pension is not in respect of services rendered to the Spanish Government.
Reasons for Decision
Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year.
A disability pension is ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997.
In determining the liability of an Australian resident to Australian tax on foreign sourced income, it is also necessary to consider the provisions of 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 Income Tax Assessment Act 1936 and ITAA 1977 so that those Acts are read as one.
Schedule 39 to the Agreements Act contains the double tax agreement between Australia and the Kingdom of Spain (the Spanish Agreement). The Spanish Agreement operates to avoid the double taxation of income received by Australian and Spanish residents.
Article 18(1) of the Spanish Agreement applies to pensions, other than those paid by, or out of funds created by, a Contracting State to an individual in respect of services rendered to that State.
Article 18(1) of the Spanish Agreement provides that pensions paid to a resident of Australia are taxable only in Australia.
As the pension is not paid in respect of services rendered to the Spanish Government, Article 19 of the Spanish Agreement does not apply.
As the taxpayer is a resident of Australia, their pension will be assessable under subsection 6-5(2) of the ITAA 1997.