Assessability of an Australian pension received by a resident of Indonesia

Is the taxpayer, a resident of Indonesia, assessable on a pension from an Australian superannuation fund under subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Yes. The taxpayer, a resident of Indonesia, is assessable on their pension under subsection 6-5(3) of the ITAA 1997 but the rate of tax is limited to 15%.

The taxpayer is a foreign resident for Australian tax purposes.

The taxpayer is a resident of Indonesia.

The taxpayer has never worked in Australia but is receiving a pension from an Australian superannuation fund as the result of previous employment with an Australian company.

Subsection 6-5(3) of the ITAA 1997 provides that ordinary income derived by a foreign resident directly or indirectly from Australian sources, as well as other ordinary income included by a provision on a basis other than having an Australian source, is assessable. Statutory income from all Australian sources, or included by a provision on a basis other than having an Australian source, is also included in a foreign resident's assessable income under subsection 6-10(5) 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 Income Tax Assessment Act 1936 (ITAA 1936) which contains the definitions of annuities and superannuation pensions.

The superannuation pension received by the taxpayer is considered to have its source in Australia as the source of a superannuation fund payment is the location of the particular fund or branch of the fund against which the payment is finally charged, and not the place where the employee's services are performed (paragraph 45 of Taxation Ruling IT 2168).

In determining liability to Australian tax on Australian sourced income received by a foreign resident, it is necessary to consider not only the income tax laws but also any applicable tax treaty 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.

Schedule 37 of the Agreements Act contains the tax treaty between Australia and Indonesia (Indonesian Agreement). The Indonesian Agreement operates to avoid the double taxation of income received by Australian and Indonesian residents.

Article 18(1) of the Indonesian Agreement provides that an Australian pension received by an Indonesian resident is subject to tax in Indonesia. However, under Article 18(2), it provides that the Australian pension is also subject to tax in Australia but the rate of tax is not to exceed 15 per cent of the gross amount of the pension.

Article 24(3) of the Indonesian Agreement deals with the relief of double taxation and requires Indonesia to allow its residents a credit for Australian tax paid in accordance with the agreement on Australian sourced income to offset the Australian tax paid on that income. However, the amount of the credit cannot exceed the Indonesian tax payable on that income.

Accordingly, the Australian pension received by the taxpayer is included in their assessable income under section 6-5 of the ITAA 1997. The tax payable on this income shall not exceed 15 per cent of the gross amount of the pension. The taxpayer will be able to claim the Australian tax paid as a credit against any Indonesian tax payable.