ARTICLE 18 — U.S. Income Tax Treaty

Pensions, Annuities, Alimony and Child Support

This Article deals with the taxation of pensions, social security payments, annuities, alimony and child support derived by individuals who are residents of a Contracting State or citizens of the United States.

Paragraph 1 provides that pensions derived and beneficially owned by a resident of one of the Contracting States in consideration of past employment, other than pensions covered in Article 19 (Governmental Remuneration), shall be taxable only in that State.

Paragraph 2 provides that public pensions, such as social security benefits, paid by one Contracting State to a resident of the other State or to a citizen of the United States are taxable only in the paying State. The reference to U.S. citizens is to ensure that a social security payment by Australia to a U.S. citizen resident in Australia shall be taxable only in Australia and not in the United States. The exemption of such income provided by this paragraph is excepted from the saving clause under paragraph 4 of Article 1 (Personal Scope).

Paragraph 3 provides that annuities paid to a resident of a Contracting State shall be taxable only in that State.

Paragraph 4 defines "pensions and similar remuneration" and paragraph 5 defines "annuities."

Paragraph 6 provides that alimony and other maintenance payments, including child support payments, are taxable only in the State where they arise. The definitions and source rules relating to alimony and child support payments are determined under the internal laws of the

Contracting States. Under Australian law alimony and child support payments are exempt to the recipient and not deductible by the payer. Thus, under this provision, alimony arising in the United States and paid to a resident of Australia will be deductible by the payer but taxed to the recipient by the United States. Alimony arising in Australia and paid to a U.S. resident, and child support payments arising in either State and paid to a resident of the other State, will not be deductible by the payer and will not be taxed to the recipient. These exemptions are available to residents and citizens of the respective States as a result of paragraph 4 of Article 1 (Personal Scope).