Edited version of private advice

Authorisation Number: 1052435031611

Date of advice: 20 August 2025

Ruling

Subject: Lump sum payment

Question

Will Article 18(2) of the Convention between Australia and Country A for the Avoidance of Double Taxation with respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion (the Convention) apply to treat the lump sum payment by the Trustee of the Fund to Person A as non-taxable in Australia?

Answer

Yes

This ruling applies for the following period:

DD MM YYYY

The scheme commenced on:

DD MM YYYY

Relevant facts and circumstances

The Trustee is a company incorporated in and with its registered office in Country A. The directors of the Trustee are all Country A tax residents.

The Trustee administers a retirement savings trust (the Fund), to provide individual personal benefits, pensions or retiring allowances for employees of employers and other persons who are eligible to join the Fund, investing in off-shore international assets.

When the Trustee was incorporated, and the Fund was established, there were no Australian assets and at all times since establishment, central management and control has been outside Australia.

The Fund is governed by deed (the Deed), originally executed on DD MM YYYY, amended and consolidated on DD MM YYYY. The Fund is established to create one or more separate portfolios of investments for each member. Each member's portfolio or portfolios shall be administered under a separate trust for that member.

Except as provided for above, the Fund shall not provide facilities for members of the Fund to participate as beneficiaries in income or gains arising from the Fund and investments made on behalf of one beneficiary shall not be pooled with investments made on behalf of any other beneficiary.

A member is defined under the Deed as a person who has been admitted to membership of the Fund under Schedule 1 who has not ceased to be a member. Rule 1.31 of Schedule 1 prohibits a Country A resident person from becoming a member of the Fund and disallows an existing member to continue to be a member should they subsequently become a Country A resident. Pursuant to Clause 3.2 of the Deed, a member may receive a benefit from the Fund in accordance with the rules contained in Schedule 1 of the Deed.

Rule 2 of Schedule 1 of the Deed sets out circumstances which entitle members to a benefit payment. Specifically Rule 2.1 of Schedule 1 of the Deed entitles a member who has reached the normal retirement age and, if employed, has left service, to a benefit equal to the accumulated credit.

Accumulated credit is defined under Clause 1.1 of the Deed as the total balances of the employee accounts of a member. An employee account is defined under Clause 1.1 of the Deed as an account required to be kept in respect of a member. Normal retirement age of a member means the normal age of retirement as determined by the Trustee from time to time.

Person A became a member of the Fund on DD MM YYYY. A separate sub fund was established to hold Person A's entitlements called the Person A Sub Fund.

At the time Person A became a member of the Fund, they were not a resident of Australia or Country A for tax purposes. At that time, Person A was a resident of Country X for tax purposes.

Prior to becoming a resident of Australia for tax purposes in MM YYYY, Person A resided in Country X for approximately XX years. Person A is currently an Australian resident for tax purposes and have been since MM YYYY.

Person A was born on DD MM YYYY and retired from full time employment in MM YYYY, aged XX.

According to Clause 6.1 of the Deed, benefit payment requests must be made in writing to the Trustee, and the Trustee shall determine whether the benefit shall be paid wholly or in part as a lump sum payment, and Trustee shall also have the power to determine the source of such payment.

Person A requested a payment from the Fund in MM YYYY, pursuant to the Deed the Trustee determined that the 'normal retirement age' for you would be XX years of age.

Proposed Lump Sum Withdrawal

Person A is proposing to request a benefit payment of $XXX from the Fund. The benefit payment will be paid as a lump sum. At the time of this payment, Person A will be a resident of Australia for tax purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 Division 305

Convention between Australia and Country A for the Avoidance of Double Taxation with respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion Article 18(2)

Further issues for you to consider

We have limited this private ruling to the question raised in your application. There may be related issues that you should consider, including:

•                     Subdivision D in Division 6AAA of the Income Tax Assessment Act 1936, which establishes an accruals system of taxation of certain non-resident trust estates.

You may apply for another private ruling on this or any other matter.

Does Part IVA apply to this ruling?

Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement.

If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax.

We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.

If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.

For more information on Part IVA, go to our website ato.gov.au/gaar.

Reasons for decision

Question

Will Article 18(2) of the Convention between Australia and Country A for the Avoidance of Double Taxation with respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion (the Convention) apply to treat the lump sum payment by the Trustee of the Fund to Person A as non-taxable in Australia?

Summary

Yes, Article 18(2) of the DTA will operate so that the lump sum payment will not be included in Person A's assessable income.

Detailed reasoning

Division 305 of the Income Tax Assessment Act 1997 sets out the tax treatment of superannuation benefits received by taxpayers from non-complying superannuation plans, including lump sum payments from foreign superannuation funds. The assessment of such lump sums is subject to the operation of Australia's international tax treaties.

Article 18(2) of the Convention provides that:

Lump sums arising in a Contracting State and paid to a resident of the other Contracting State under a retirement benefit scheme, or in consequence of retirement, invalidity, disability or death, or by way of compensation for injuries, shall be taxable only in the first-mentioned State.

Paragraph 2.292 of the Explanatory Memorandum to the International Tax Agreements Amendment Bill (No. 1) 2010 sets out the delegations' consideration of the phrase 'retirement benefits scheme' in the course of negotiating the Convention:

It is understood that the term 'retirement benefit scheme' means an arrangement in which the individual participates in order to secure retirement benefits. In the case of payments arising in Australia a retirement benefit scheme includes a superannuation fund and a retirement savings account and in the case of Country A includes any superannuation scheme ...

The term 'superannuation scheme' is defined in the Income Tax Act 2007 (Country A) as meaning, amongst other things:

(i)            a trust or unit trust established by its trust deed mainly for the purpose of providing retirement benefits to beneficiaries who are natural persons or paying benefits to superannuation funds ...

Paragraph 2.294 of the Explanatory Memorandum to the International Tax Agreements Amendment Bill (No. 1) 2010 notes the delegations' understanding of where lump sums arise:

It is understood that pensions, other similar periodic remuneration and lump sums referred to in Article 18 will arise where the fund is established or, in the case of such income paid by the Government of a Contracting State, in that State.

Application to your circumstances

The Fund falls within scope of what is a 'retirement benefit scheme' in Article 18(2) of the Convention. The payment of $XXX by the Trustee of the Fund to you is a lump sum that arises in Country A. That lump sum will be paid under a retirement benefit scheme. Consequently, the lump sum will not form part of your assessable income in accordance with Article 18(2) of the Convention.