ATO Interpretative Decision

ATO ID 2004/551

Income Tax

• This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

Issue

Is the lump sum payment received by a resident taxpayer from an eligible non-resident non-complying superannuation fund (ENRNCSF) located in South Africa assessable under section 27CAA of the Income Tax Assessment Act 1936 (ITAA 1936) and included in the taxpayer's assessable income under subsection 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

Yes. The lump sum payment received by a resident taxpayer from an ENRNCSF located in South Africa is assessable under section 27CAA of the ITAA 1936 and included in the taxpayer's assessable income under subsection 6-10(4) of the ITAA 1997, except to the extent that the amount was previously assessed under the FIF measures and is treated as non-assessable non-exempt income under section 23AK of the ITAA 1936.

Facts

The taxpayer is a resident of Australia for taxation purposes.

Prior to becoming a resident of Australia, the taxpayer was a resident of South Africa for income tax purposes.

The taxpayer invested in a private superannuation policy from a superannuation fund located in South Africa during the period that the taxpayer was a resident of South Africa.

The taxpayer received a lump sum payment from the fund more than six months after the taxpayer became a resident of Australia.

The fund is an ENRNCSF within the meaning of section 27A of the ITAA 1936.

Reasons for Decision

Subsection 6-10(4) of the ITAA 1997 states that the assessable income of an Australian resident includes statutory income from all sources, whether in or out of Australia.

Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list are sections 27A to 27H of the ITAA 1936 which provide that eligible termination payments are included in assessable income.

Section 27CAA of the ITAA 1936 includes in an Australian resident's assessable income certain amounts paid or transferred from an ENRNCSF, where the transfer is made six months or more after the taxpayer becomes a resident of Australia.

Section 27CAA of the ITAA 1936 includes in assessable income the gross amount of the lump sum, less the accumulated entitlement and any additional contributions. The accumulated entitlement is the amount properly payable to the taxpayer immediately before the day the taxpayer became a resident of Australia. The additional contributions are any contributions made to the fund after the taxpayer became a resident of Australia. In simple terms, the assessable amount is the earnings of the fund since the taxpayer became a resident of Australia.

The investment in the private superannuation policy falls within the foreign investment fund (FIF) provisions. The practical effect of this is that, unless specifically exempted, the accretion in value of the amount held in the policy will be included in the assessable income of the Australian resident on an annual basis.

Where a payment from the private superannuation policy is subsequently received in the form of a lump sum, or is transferred to a resident superannuation fund, an amount calculated under section 27CAA will be included in the taxpayer's assessable income.

There will be no double taxation under section 27CAA for amounts previously included as assessable income under the FIF measures as the payment will be treated as non-assessable non-exempt income to the extent allowed for under section 23AK.

In determining liability to tax on foreign sourced income received by a resident, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the ITAA 1997 so that those Acts are read as one.

Schedule 42 to the Agreements Act contains the double tax agreement and the protocol between Australia and South Africa (the South African Agreement). The South African Agreement operates to avoid the double taxation of income received by Australian and South African residents.

Article 18 of the South African Agreement deals with pensions and annuities and provides that any pension or annuity derived by an Australian resident from South African sources shall be exempt from tax in South Africa. A lump sum payment from South African superannuation policy is not a periodic payment and therefore is not within the scope of Article 18. However, other provisions of the South African Agreement do not affect Australia's taxation of such lump sum payments to Australian residents.

Accordingly, the lump sum payment received by the taxpayer from an ENRNCSF located in South Africa is assessable under section 27CAA of the ITAA 1936 (except to the extent that the amount was previously assessed under the FIF measures and is treated as non-assessable non-exempt income under section 23AK) and is included in the taxpayer's assessable income under subsection 6-10(4) of the ITAA 1997.

Year of income:  Year ended 30 June 2003

Legislative References:
Income Tax Assessment Act 1936
   section 23AK
   subsection 27A(1)
   section 27CAA
   section 27H

Related Public Rulings (including Determinations)
Taxation Ruling TR 2003/12

Keywords
Double tax agreements
Foreign pension
Foreign superannuation payments
Foreign tax credits
Lump sum payments
South Africa

Business Line:  Public Groups and International

Date of publication:  9 July 2004

ISSN: 1445-2782