Edited version of Private Advice

Authorisation Number: 1052479347390

Date of advice: 28 November 2025

Ruling

Subject:Taxation treatment - foreign superannuation lump sum benefit

Question 1

Is the Fund a 'foreign superannuation fund' as defined in sections 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Is any part of the lump sum payment received by you from the Fund assessable as applicable fund earnings under section 305-70 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20YY

Relevant facts and circumstances

You were a resident of Country A.

You became a resident of Australia.

You opened a foreign fund account prior to becoming an Australian resident.

You submitted a request to the Fund to receive a pay out of your total benefits.

The account was closed when your total benefits were paid to your bank account during the 20YY income year.

Tax was paid to the Country A Taxation authorities by the Fund.

You have not made any contributions to the Fund while you were an Australian resident.

You departed Australia for overseas employment and ceased to be an Australian tax resident for a time during the relevant period.

Benefits cannot be accessed before 55 unless under exceptional circumstances such as ill health or death.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 305-70

Income Tax Assessment Act 1997 section 305-75

Income Tax Assessment Act 1997 section 770-10

Income Tax Assessment Act 1997 section 770-15

Income Tax Assessment Act 1997 section 960-50

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

Superannuation Industry (Supervision) Act 1993 subsection 10(1)

Superannuation Industry (Supervision) Act 1993 section 62

Other relevant documents

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

Reasons for decision

Foreign superannuation fund definition

When a person receives a lump sum from a foreign superannuation fund more than six months after they became an Australian resident, the growth they earned on their foreign superannuation during the period when they were a resident of Australia is included in their assessable income as 'applicable fund earnings' under section 305-70 of the ITAA 1997.

A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as being a fund that is not an Australian superannuation fund. A superannuation fund has the meaning given by subsection 10(1) of the Superannuation Industry (Supervision) Act 1993 (SISA), which requires that the fund is a 'provident, benefit, superannuation or retirement fund'.

In section 62 of the SISA, a regulated superannuation fund must be 'maintained solely' for the 'core purposes' of providing benefits to a member when the events occur:

•                     on or after retirement from gainful employment; or

•                     attaining a prescribed age; and

•                     on the member's death. (this may require the benefits being passed on to a member's dependants or legal representative).

The Commissioner's view is that for a fund to be classified as a superannuation fund, it must exclusively provide a narrow range of benefits that are characterised by some specific future purpose. That is, the payment of superannuation benefits upon retirement, invalidity or death of the individual or as specified under the SISA.

In this case, the benefits from the Fund cannot be accessed other than at retirement, death or incapacity and therefore it meets the definition of a foreign superannuation fund.

Applicable fund earnings

When a person receives a lump sum from a foreign superannuation fund more than six months after they became an Australian resident, then broadly, the earnings on their foreign superannuation during the period when they were a resident of Australia is included in their assessable income as 'applicable fund earnings' under section 305-70 of the ITAA 1997.

The applicable fund earnings amount is worked out in relation to a lump sum paid from a foreign superannuation fund under either subsection 305-75(2) or subsection 305-75(3) of the ITAA 1997. Subsection 305-75(2) of the ITAA 1997 applies where the person was an Australian resident at all times during the period to which the lump sum relates. Subsection 305-75(3) of the ITAA 1997 applies where the person was not an Australian resident at all times during the period to which the lump sum relates.

For subsection 305-75(2) and subsection 305-75(3) of the ITAA 1997, the period to which the lump sum relates is the period during which funds are accumulated in a particular foreign superannuation fund for a member that has a relation to the superannuation lump sum paid by that fund. That is consistent with other parts of those subsections, which also focus on the foreign superannuation fund from which the lump sum is paid.

Subsection 305-75(3) of the ITAA 1997 states, if you become an Australian resident after the start of the period to which the lump sum relates (but before you receive it), the amount of your applicable fund earningsis the amount (not less than zero) worked out as follows:

a)            work out the total of the following amounts:

          i.       the amount in the fund that was vested in you just before the day (the start day) you first became an Australian resident during the period;

          ii.       the part of the payment that is attributable to contributions to the fund made by or in respect of you during the remainder of the period;

          iii.       the part of the payment (if any) that is attributable to amounts transferred into the fund from any other *foreign superannuation fund during the remainder of the period;

b)            subtract that total amount from the amount in the fund that was vested in you when the lump sum was paid (before any deduction for *foreign tax);

c)            multiply the resulting amount by the proportion of the total days during the period when you were an Australian resident;

d)            add the total of all previously exempt fund earnings (if any) covered by subsections (5) and (6).

The effect of section 305-75 of the ITAA 1997 is that only the income earned in respect of the foreign superannuation fund since Australian residency, less any contributions made in that period, is assessed. Further, any amounts representative of earnings during periods of non-residency, and transfers into the paying fund do not form part of the taxable amount when the lump sum is paid.

Foreign currency conversion

The foreign currency translation rules for lump sums paid by 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).

For the purposes of working out your applicable fund earnings in relation to a superannuation lump sum under section 305-75 of the ITAA 1997, the correct rule for translating foreign currency into Australian dollars is the rule described in Item 11A of the table in subsection 960-50(6) of the ITAA 1997 (as modified by regulation 960-50.01(1) of the Income Tax Assessment (1997 Act) Regulations 2021).

This means that the exchange rate at which it is reasonable to translate amounts into Australian currency for the purposes of section 305-75 of the ITAA 1997, is the exchange rate applicable at the time of receipt of the relevant superannuation lump sum directly by you or your complying superannuation fund. Specifically, under subsection 960-50(4) of the ITAA 1997, each amount or component that is denoted in a foreign currency must be translated into an Australian dollar equivalent first before any calculations are undertaken.

Proportion of residency days

Paragraph 305-75(3)(c) of the ITAA 1997 requires the applicable fund earning calculation to take into consideration the proportion of the total days during the period when the taxpayer was an Australian resident. The period commences on the date (relating to the lump sum) on which the member first became an Australian resident and ceases when the foreign superannuation lump sum is paid.

In this case, you became an Australian resident in 20XX and the lump sum was paid from the Fund during the 20YY income year - which is a total of xxxx days. You were a non-resident for a time during this period, which is xxxx days. The number of days that you were a resident in the relevant period was xxxx days. The portion of resident days is xxxx.

Calculation of your applicable fund earnings

As you became a member of the Fund before you became a resident of Australia, the applicable fund earnings on this lump sum will be worked out in accordance with subsection 305-75(3) of the ITAA 1997.

Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt.

Table 1: Exchange rate from Pound sterling to Australian dollar

You should include your applicable fund earnings of $xxxx in your assessable income for the 20YY income year.

Foreign Income Tax Offset

Subsection 770-10(1) of the ITAA 1997 provides for a foreign income tax offset for an income tax year for foreign income tax paid in respect of an amount that is included in assessable income.

Section 770-15 of the ITAA 1997 specifies that foreign income tax means tax that is imposed under a law other than an Australian law and is:

•                     tax on income

•                     tax on profits or gains, whether of an income or capital nature, or

•                     any other tax that is subject to an agreement covered by the International Tax Agreements Act 1953.

Article 22 requires Australia to provide Australian residents a credit against their Australian tax liability for Country B tax paid in accordance with the tax treaty on income or gains derived from Country B sources which are taxable in Australia.

If you are claiming a foreign income tax offset of more than $1,000, you will first need to work out your foreign income tax offset limit. The offset limit is based on a comparison between your tax liability and the tax liability you would have if certain foreign-taxed and foreign-sourced income and related deductions were disregarded.