Assessability of an Australian state government pension received by a Sri Lankan resident

Is an Australian government pension received by a Sri Lankan resident assessable under subsection 6-10(5) of the Income Tax Assessment Act 1997 (ITAA 1997)?

No. An Australian government pension received by a Sri Lankan resident is not assessable under subsection 6-10(5) of the ITAA 1997.

The taxpayer is a Sri Lankan resident and is not an Australian resident.

The taxpayer received a state government pension in respect of services rendered in connection with a business carried on by the government in Australia.

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. Section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) includes annuities and superannuation pensions as assessable income.

In determining liability to tax on Australian sourced income received by a non resident, it is necessary to also consider 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 31 to the Agreements Act contains the double tax agreement between Australia and Democratic Socialist Republic of Sri Lanka (the Sri Lankan Agreement).

Article 19 of the Sri Lankan Agreement deals with government service pensions. Article 19(3) of the Sri Lankan Agreement provides that Article 18 of the Sri Lankan Agreement applies where the government pension in respect of services rendered in connection with a business carried on by a local authority of Australia.

The state government pension received by the taxpayer is in respect of services rendered in connection with a business carried on by the state government, a local authority of Australia. Accordingly, Article 18 of the Sri Lankan Agreement will apply.

Article 18(1) of the Sri Lankan Agreement provides that pensions paid to a Sri Lankan resident is taxable only in Sri Lanka.

The taxpayer is a resident of Sri Lanka and is not an Australian resident. Accordingly, the Australian state government pension will be taxable only in Sri Lanka.