You have to pay income tax on the applicable fund earnings component of a foreign fund transfer.
Applicable fund earnings
In general terms, the applicable fund earnings are the earnings on your foreign super interest which have accrued since you became a resident of Australia.
How the applicable fund earnings are calculated depends on whether you were an Australian resident at all times during the period to which the lump sum relates. The way to calculate your applicable fund earnings is set out at section 305-75 of the Income Tax Assessment Act 1997.
The six month rule
None of your foreign super interest is treated as applicable fund earnings if you transfer it to Australia within six months of:
- becoming a resident of Australia, or
- your foreign employment terminating.
Example 2
Leonard grew up overseas, and contributed to a super scheme under the rules of that country. He emigrated to Australia and became an Australian resident in September 2008. At that time, his super interest was the equivalent of $A300,000.
In May 2009, he decided to transfer the balance from his foreign super fund to his Australian super fund. The value of his super interest was then $400,000, so his applicable fund earnings were $100,000. Leonard is required to declare this amount in his income tax return (or he may be able to include the amount in his fund’s assessable income – see Including applicable fund earnings in your fund’s assessable income.)
Example 3
Cameron worked overseas for two and a half years and accrued the equivalent of $A25,000 in his foreign super fund. He returned to Australia in July and arranged for the transfer of his foreign super interest in October. The amount transferred was $A27,000, which included $2,000 he earned after he became an Australian resident. However, because he transferred the amount within six months of becoming an Australian resident, none of the amount is treated as applicable fund earnings.
Including applicable fund earnings in your fund’s assessable income
You may be able to make an election to include some of your applicable fund earnings in your fund’s assessable income. This will mean that your fund will pay the tax on the amount of your applicable fund earnings you elect, instead of you. Your fund pays income tax at 15% which may be less than the rate of tax that you pay.
There are conditions to be met before you can make the election. You must:
- have been resident in Australia for more than six months or have terminated your employment more than six months ago
- transfer the whole of the foreign fund interest directly to a complying Australian super fund.
If you do not meet the conditions you must still include any applicable fund earnings in your personal assessable income but you cannot elect to include any of the amount in your fund’s assessable income.
Your election must be made in the approved form Choice to have your Australian fund pay tax on a foreign super transfer. For more information, including a copy of the approved form, refer to Tax payable on a foreign super transfer.
Example 4
Tony transfers $160,000 from his foreign super fund to his Australian super fund. The transfer is the whole of his interest in his foreign fund. The applicable fund earnings amount is $40,000.
If Tony makes no election he must include the $40,000 in his personal assessable income for the year (taxed at his marginal tax rates).
If Tony elects to include $30,000 of the applicable fund earnings into his fund’s assessable income, his fund will include $30,000 in its assessable income (taxed at 15%) and Tony must include $10,000 in his personal assessable income for the year (taxed at his marginal tax rates).
If Tony elects to include $40,000 of the applicable fund earnings into his fund’s assessable income for the year, his fund will include $40,000 in its assessable income (taxed at 15%) and Tony will not have to include any of the amount in his personal assessable income for the year.
Sections within Transferring amounts to a complying Australian super fund
Last Modified: Wednesday, 17 June 2009
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