Assessability of an allocated pension from an Australian resident public superannuation fund received by a resident of Japan

Is an allocated pension from an Australian resident superannuation fund received by a Japanese resident assessable income under subsection 6-10(5) of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. The allocated pension received from an Australian resident public superannuation fund by a Japanese resident is not assessable income under subsection 6-10(5) of the ITAA 1997.

The taxpayer is a resident of Japan for taxation purposes.

The taxpayer is in receipt of an allocated pension from an Australian resident public superannuation fund. The superannuation fund is not a Commonwealth Government employee's superannuation fund.

The taxpayer made personal contributions to the public superannuation fund while employed by a Commonwealth Government department.

Subsection 6-10(5) of the ITAA 1997 provides that a foreign resident taxpayer's assessable income includes statutory income from all Australian sources and other statutory income included by a provision on a basis other than having an Australian source. Subsection 995-1(1) of the ITAA 1997 defines 'foreign resident' to mean a person who is not a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

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 superannuation pensions are included in assessable income.

In determining liability to 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 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1997 and ITAA 1936 so that those Acts are read as one.

Schedule 6 to the Agreements Act contains the tax treaty and the protocol between Australia and Japan (the Japanese Agreement). The Japanese Agreement operates to avoid the double taxation of income received by Australian and Japanese residents.

Article 13(1) of the Japanese Agreement provides that a pension or annuity, derived from sources within Australia by an individual who is a resident of Japan, shall be exempt from tax in Australia.

Article 13(3) of the Japanese Agreement provides that the Article 13 shall not apply to a pension paid to an individual in respect of services rendered to the Government of the Commonwealth or the Government of Japan in the discharge of governmental functions.

In this case, the taxpayer is receiving a non-commutable allocated pension from an Australian resident public superannuation fund from personal contributions made during the period the taxpayer was employed by a Commonwealth Government department. Article 13(3) of the Japanese Agreement does not apply, as the pension paid to the taxpayer was not in respect of services rendered to the Commonwealth Government in the discharge of governmental functions.

Article 13(1) of the Japanese Agreement applies and the pension is exempt from tax in Australia.

As the taxpayer is a Japanese resident, the allocated pension received from an Australian resident public superannuation fund will not be assessable income under subsection 6-10(5) of the ITAA 1997.