Australian Income Tax on Military Retired Pay and Social Security

Military retired pay. Article 19 of the 1982 U.S.-Australia income tax convention exempts from tax in the other country pensions paid from one country's funds to its own citizen for services as its employee in the discharge of governmental functions, which covers U.S. military retired pay paid to a U.S. citizen. But the saving clause in Article 1(3) lets each country tax its residents as if there were no treaty, and Article 1(4)(b) keeps Australia's side of Article 19 only for individuals "who are not ordinarily resident" in Australia. That is narrower than every other treaty in this catalog, which keep the exemption for a resident who is neither a citizen nor a permanent resident. A U.S. retiree who is ordinarily resident in Australia gets no treaty exemption for retired pay, Australia taxes it under its own law, and the United States also taxes its citizen, with relief through the treaty's double tax article. U.S. Social Security: taxable only in the United States. Article 18(2) makes social security payments and other public pensions paid by one country to a resident of the other, or to a U.S. citizen, taxable only in the paying country, and Article 1(4)(a) spares it from the saving clause. Australia may not tax U.S. Social Security paid to a resident of Australia. The 2001 Protocol changed the saving clause only for former citizens and long-term residents and did not change these rules. VA disability compensation is not named in the treaty, and Australia's treatment of it was not researched for this entry. It is exempt from U.S. tax under 38 U.S.C. 5301.