ATO Interpretative Decision
ATO ID 2003/908 (Withdrawn)
Income Tax
Foreign tax credit: New Zealand government superannuation pension
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This ATO ID is withdrawn as former section 160AF of the Income Tax Assessment Act 1936 has been repealed. With effect from 1 July 2008 the foreign tax credit system is replaced by the foreign income tax offset system. Despite its withdrawal, this ATO ID continues to be a precedential view in respect of decisions relating to the former provisions. The current ATO position on this issue is contained in ATO ID 2009/75.
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This document has changed over time. View its history. |
FOI status: may be released
Status of this decision: Decision Withdrawn 31 July 2009
 CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser. |
Issue
Is the taxpayer entitled to a foreign tax credit under subsection 160AF(1) of the Income Tax Assessment Act 1936 (ITAA 1936) in respect of a pension received from the New Zealand (NZ) Government Superannuation Fund?
Decision
No. The taxpayer is not entitled to a foreign tax credit under subsection 160AF(1) of the ITAA 1936 in relation to the pension received from the NZ Government Superannuation Fund because they have not paid foreign tax for which they were personally liable in respect of the pension.
Facts
The taxpayer is an Australian resident for taxation purposes.
The taxpayer is retired and receives a NZ Government Superannuation Pension.
The NZ Government Superannuation Fund Amendment Act 1990 amended the NZ Government Superannuation Fund Act 1956 reducing existing allowances and annuities. The allowance received is now called a Free of Tax Annual Allowance.
The Free of Tax Annual Allowance is reduced by the amount referred to as the Free of Tax Reduction. The Free of Tax Reduction is an amount calculated in accordance with the formula in section 4 of the NZ Government Superannuation Fund Amendment Act 1990 .
The income stream received is called the Free of Tax Annual Allowance and is non-assessable in NZ.
The Free of Tax Annual Allowance is assessable in Australia under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).
Reasons for Decision
Subsection 160AF(1) of the ITAA 1936 provides that a resident taxpayer
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- whose assessable income includes foreign income;
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- who has paid foreign tax in respect of the foreign income; and
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- who was personally liable for the foreign tax
is entitled to a credit against the Australian tax payable of the amount of that foreign tax, up to the amount of Australian tax payable on the foreign income.
Subsection 6AB(1) of the ITAA 1936 defines 'foreign income' as income (including eligible termination payments) derived from sources in a foreign country.
Subsection 6AB(2) of the ITAA 1936 defines 'foreign tax' as a tax imposed under the law of the foreign country at the national, State, local or other government level which is imposed on income, profits or gains, whether of an income or capital nature, or any other tax, being a tax that is subject to an agreement having the force of law under the International Tax Agreements Act 1953 (the Agreements Act).
The calculation of the amount of the taxpayer's Free of Tax Reduction is made by reference to 'each instalment of a retiring allowance' and the formula as set out in section 4 of the NZ Government Superannuation Fund Amendment Act. The Free of Tax Reduction is the amount by which the Free of Tax Annual Allowance is reduced. Accordingly, the Free of Tax Reduction is part of the calculation of the amount of the Free of Tax Annual Allowance received.
The Free of Tax reduction is not a tax, nor is it a tax imposed by the Government of NZ. Accordingly, it is not a 'foreign tax' for the purposes of subsection 6AB(2) of the ITAA 1936.
Furthermore, the Free of Tax Reduction is not foreign tax and not an amount for which the taxpayer is personally liable for the purposes of subsection 160AF(1) of the ITAA 1936.
As a result, the taxpayer is not entitled to a foreign tax credit under subsection 160AF(1) of the ITAA 1936 on the pension paid from the NZ Government Superannuation Fund.
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 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 with the Agreements Act. Schedule 4 to the Agreements Act contains the double tax agreement between Australia and NZ (the NZ Agreement).
Article 24(2) of the NZ Agreement provides that, subject to the provisions of the law of Australia, a credit for any tax paid in NZ under NZ law and in accordance with the NZ Agreement will be allowed against Australian tax payable on income from NZ sources. The Free of Tax Annual Allowance received is non-assessable in NZ. There has been no NZ tax paid under the law of NZ.
Article 19(1) of the NZ Agreement provides that pensions paid to a resident of Australia shall be taxable only in Australia. Hence, the pension received from the NZ Government Superannuation Fund is taxable only in Australia. Even if it were recognised that the taxpayer had paid tax in NZ in respect of the pension received, such tax would not have been paid in accordance with the NZ Agreement.
Therefore, Article 24(2) of the NZ Agreement does not apply to allow a foreign tax credit in respect of the pension received by the taxpayer.
Date of decision: 19 September 2003
| Year of income: | Year ended 30 June 2001 |
| | Year ended 30 June 2002 |
| | Year ended 30 June 2003 |
| | Year ending 30 June 2004 |
Legislative References:
Income Tax Assessment Act 1936
subsection 6AB(1)
subsection 6AB(2)
subsection 160AF(1) Income Tax Assessment Act 1997
section 6-5 International Tax Agreements Act 1953
section 4
Schedule 4
Schedule 4, Article 24(2)
Schedule 4, Article 19(1) Government Superannuation Act 1956
the Act Government Superannuation Fund Amendment Act 1990
the Act
Keywords
Double tax agreements
Foreign pension
International law
International tax
New Zealand
Treaties
Date of publication: 10 October 2003
ISSN: 1445-2782
| ATO ID 2003/908 (Withdrawn) history |
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