Edited version of private advice

Authorisation Number: 1051983620501

Date of advice: 8 June 2022

Ruling

Subject: Lump sum payment from a foreign fund

Question

Is any part of the lump sum payment you received from the foreign fund assessable as applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Income year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You became a member of a foreign fund more than XX years ago.

You became a resident of Australia for taxation purposes during the 19XX-XX income year.

During the 20XX-XX income year you opted for an on-off lump sum (which represented 25% of the total value of your interest in the foreign fund) and monthly pension from the foreign fund.

There have been no contributions into the foreign fund since you became an Australian resident for tax purposes.

There have been no transfers into the foreign fund since you became an Australian resident for tax purposes.

The value of your interest in the foreign fund at residency was $X.

The amount of the lump sum received in the 20XX-XX income year was $Y.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 305-70

Income Tax Assessment Act 1997 Section 305-75

Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision

Summary

A portion of the lump sum received from the foreign fund is assessable as 'applicable fund earnings'. The amount of applicable fund earnings is $XX.

Detailed reasoning

If a Taxpayer receives a lump sum from a foreign superannuation fund more than six months after becoming an Australian resident, the Taxpayer's assessable income includes any growth (applicable fund earnings) earned on the foreign superannuation interest while the Taxpayer was an Australian resident.

In this case, the foreign fund is a foreign superannuation fund. You became an Australian resident after the start of the period to which the lump sum relates. You remained an Australian resident at all times until the lump sum was paid. Therefore, the applicable fund earnings is calculated in accordance with subsection 305-75(3) of the ITAA 1997.

The effect of section 305-75 of the ITAA 1997 is that you are only assessed on the income earned on your benefits in the foreign fund while you were an Australian resident. Earnings during periods of non-residency, contributions and transfers into the foreign fund are not taxable when the overseas benefit is paid.

An amount of applicable fund earnings may also include amounts of previously exempt fund earnings which occur where an amount in a foreign superannuation fund is transferred to another foreign superannuation fund before being received in Australia. These earnings would not otherwise be included and are set aside until the lump sum is transferred to you, or your complying Australian superannuation fund.

The foreign currency translation rules for lump sum transfers from foreign superannuation funds are explained in ATO Interpretative Decision ATO ID 2015/7: Foreign currency translation rules in working out 'applicable fund earnings' under section 305-75 of the ITAA 1997 (ATO ID 2015/7). We use the exchange rate that applied when the Taxpayer received the lump sum, to work out the Australian dollar equivalent for the amount in the foreign superannuation fund that was vested in the Taxpayer on a certain date.