If you withdraw a lump sum directly from a foreign super fund, the tax treatment depends on whether you receive the lump sum payment:
- within 6 months of becoming a resident
- within 6 months of ceasing foreign employment
- more than 6 months after becoming an Australian resident or ceasing foreign employment.
A lump sum payment you receive within 6 months of becoming an Australian resident for tax purposes is tax-free if both of these conditions apply:
- the payment relates only to a period when you were not an Australian resident, or a period that started after you became an Australian resident and ended before you received the payment
- the payment doesn't exceed the amount in the fund that was vested in you when you received the payment.
A lump sum payment you receive within 6 months of ceasing foreign employment (including retirement and cessation because of death) is tax-free if all these conditions apply:
- you were an Australian resident for tax purposes during the period of employment
- the payment relates only to period of employment
- the payment is not exempt from tax under the law of the foreign country
- your earnings or remuneration from the employment are exempt from income tax in Australia.
If you receive a lump sum payment more than 6 months after becoming an Australian resident for tax purposes or ceasing foreign employment you can either:
- include the lump sum amount that relates to your applicable fund earnings in your assessable income for the year
- transfer the entire value of your super interest directly from the foreign super fund into a complying Australian super fund and choose to include all or part of your applicable fund earnings in the fund's assessable income.
If you choose to transfer the super interest into a complying Australian super fund, the amount you include in your assessable income is the applicable fund earnings less the amount of these earnings you have chosen to be assessed in the fund.
The remainder of the super lump sum is tax-free.
Broadly, applicable fund earnings are the earnings on your foreign super interest that 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.
You can request a private ruling to determine how much of a transfer is applicable fund earnings.
Example: applicable fund earnings and becoming an Australian resident
In June 2015, Hassan left Australia and worked overseas. During this time, he contributed to a foreign super fund. In July 2018, Hassan returned to Australia and immediately again became an Australian resident for tax purposes. At this time, his foreign super interest was valued at $12,000.
In February 2019, Hassan decided to transfer the balance of his foreign super fund to himself. The value of his super interest was then $13,500, of which $1,500 was earned since he became an Australian resident. The $1,500 represents applicable fund earnings that Hassan is required to declare in his tax return. He does not have to include the $12,000 in his assessable income.End of example
If you transfer the entire amount of your super interest into a complying Australian super fund, you can choose to have all or some of your applicable fund earnings included in the fund's assessable income.
The taxable income of a complying super fund is generally taxed at a concessional rate of 15%, which may be less than the rate you would pay personally.
You make this choice on the Completing your choice to have your Australian super fund pay tax on a foreign super transfer form.How a lump sum received from a foreign super fund is taxed.