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Ruling

Subject: Lump sum payment from occupational retirement scheme overseas

Question:

Does section 305-70 of the Income Tax Assessment Act 1997 apply to a transfer of your vested benefit from an occupational retirement scheme overseas to an Australian superannuation fund?

Answer:

Yes

This ruling applies for the following period:

Year ending 30 June 2013

The scheme commences in:

2008

Relevant facts and circumstances

You worked for an employer (the Employer) overseas and are a member of the Employer's occupational retirement scheme (the Scheme). You are under 65 years of age.

Your employment with the Employer ceased in the 2008-09 income year. You became an Australian resident for tax purposes in the second quarter of the 2008-09 income year.

On the day immediately before you became an Australian resident, the transfer value of your vested benefit in the Scheme was a specified amount in a foreign currency. Your vested benefit included an amount transferred into the Scheme from another foreign retirement scheme some time before you became an Australian resident.

Since you became a resident of Australia:

(a) no contribution has been made to the Scheme by either the Employer or yourself; and

(b) no transfer of benefit from any other foreign retirement scheme has been made to the Scheme.

The current transfer value of your vested benefit in the Scheme is a specified amount in a foreign currency. You are contemplating transferring part or all of that vested benefit into an Australian superannuation fund in the third quarter of the 2012-13 income year.

The Scheme was established by a trust deed more than five years ago. The trust deed provides, among other things, that:

· the main purpose of the Scheme is the provision of Relevant Benefits for or in relation to Employees or former Employees or other individuals for whom an Employer has an obligation to provide Relevant Benefits;

· the trust deed is to be subject to and construed in accordance with the laws of another foreign country ; and

· the trust established by the deed will terminate on the date after a specified number of years following the establishment of the trust.

Among other things, the following is provided in the rules that form part of the trust deed:

· with respect to each Employee's participation in the Scheme as Member under the sponsorship of his Employer, the relevant Employer will provide a written notice of participation signed by both the Employee and the Employer to the Trustee of the Scheme;

· a Member will cease to be a Member on the date his employment with an Employer ceases;

· each Member may at his discretion make periodic voluntary contributions to the Scheme in such manner and such amount as the Principal Employer and the Trustee may agree;

· each Employer in respect of each Member who is an Employee of that Employer, may at its discretion make periodic contributions to the Scheme in such manner and such amount as the Principal Employer may, from time to time, determine and notify the Trustee;

· benefits will be payable by the Trustee to Members upon cessation of membership of the Scheme;

· on cessation of membership of a Member on his Normal Retirement Date, or in the event of his Ill-Health, or at the request of the Member who has satisfied the Early Retirement Conditions, the Member will be entitled to receive from the Scheme a lump sum equal to the total of the Member's Balance and the Employer's Balance calculated at the Appropriate Valuation Date;

· on ceasing employment, a Member will be entitled to receive from the Scheme a lump sum equal to the aggregate of the Member's Balance and the Vested Percentage of the Employer's Balance calculated at the Appropriate Valuation Date;

· in the event of a Member's death in employment, a lump sum calculated in accordance with a specified formula will be paid;

· in the event of a Member being dismissed, or leaving his employment to avoid being dismissed, in circumstances where the Employer would be able, under law, to dismiss the Member summarily, the Member will not be entitled to receive any benefit made or payment from the Scheme other than such amount as is equal to the value his Member's Balance calculated as at the Appropriate Valuation Date;

· a Member may elect to remain a Member beyond his Normal Retirement Date and to defer receiving his Relevant Benefits until his actual retirement when a lump sum equal to the total of the Member's Balance and the Employer's Balance calculated as at the Appropriate Valuation Date will be payable to the Member.

Under the governing rules of the Scheme, the Trustee may accept or allow transfer of benefits from or to another retirement benefits scheme. Relevantly, one of the rules states that:

Where any Member ceases to be employed by his Employer and takes up employment with any other entity other than another Employer whether in or outside a specified place and becomes a member of a retirement benefits scheme, the Principal Employer upon application by such Member may (but is not obliged to) request the Trustee to transfer a sum representing:

i. the value of his benefits…

ii. …

to the trustee or trustees (or administrator) of such retirement benefits scheme and the Trustee shall comply with such request.

Currently you are a member of an Australian superannuation fund that accepts superannuation guarantee contributions made to that fund by your current employer in Australia for your benefit.

Assumptions:

The Commissioner considers it reasonable to assume that the transfer value of your benefit entitlement in the Scheme on the day you first became a resident of Australia, was the same as it was on the day immediately preceding that day.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 292-15.

Income Tax Assessment Act 1997 Section 292-20.

Income Tax Assessment Act 1997 Subsection 292-20(2).

Income Tax Assessment Act 1997 Section 292-25.

Income Tax Assessment Act 1997 Paragraph 292-25(2)(c).

Income Tax Assessment Act 1997 Section 292-85.

Income Tax Assessment Act 1997 Subsection 292-85(2).

Income Tax Assessment Act 1997 Subsection 292-85(3).

Income Tax Assessment Act 1997 Subsection 292-85(4).

Income Tax Assessment Act 1997 Section 292-90.

Income Tax Assessment Act 1997 Subsection 292-90(2).

Income Tax Assessment Act 1997 Section 292-410.

Income Tax Assessment Act 1997 Section 295-95.

Income Tax Assessment Act 1997 Subsection 295-95(2).

Income Tax Assessment Act 1997 Section 295-200.

Income Tax Assessment Act 1997 Section 305-55.

Income Tax Assessment Act 1997 Section 305-70.

Income Tax Assessment Act 1997 Subsection 305-70(2).

Income Tax Assessment Act 1997 Subsection 305-70(3).

Income Tax Assessment Act 1997 Section 305-75.

Income Tax Assessment Act 1997 Subsection 305-75(3).

Income Tax Assessment Act 1997 Section 305-80.

Income Tax Assessment Act 1997 Subsection 305-80(1).

Income Tax Assessment Act 1997 Subsection 305-80(2).

Income Tax Assessment Act 1997 Subsection 305-80(3).

Income Tax Assessment Act 1997 Section 960-50.

Income Tax Assessment Act 1997 Subsection 960-50(1).

Income Tax Assessment Act 1997 Subsection 960-50(4).

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

Income Tax Assessment Regulations Sub-regulation 960-50.01(1).

Income Tax Rates Act 1986 Subsection 26(1).

Superannuation (Excess Concessional Contributions Tax) Act 2006 Section 4.

Superannuation (Excess Concessional Contributions Tax) Act 2006 Section 5.

Superannuation (Excess Non-concessional Contributions Tax) Act 2006 Section 4.

Superannuation (Excess Non-concessional Contributions Tax) Act 2006 Section 5.

Superannuation Industry (Supervision) Act 1993 Section 10.

Superannuation Industry (Supervision) Act 1993 Subsection 10(1).

Superannuation Industry (Supervision) Act 1993 Section 14.

Superannuation Industry (Supervision) Act 1993 Section 19.

Superannuation Industry (Supervision) Act 1993 Section 62.

Superannuation Industry (Supervision) Regulations 1994 Paragraph 7.04(3)(a)

Superannuation Industry (Supervision) Regulations 1994 Sub-regulation 7.04(4)

Reasons for decision

Summary

The Scheme is a foreign superannuation fund.

Any 'applicable fund earnings' contained in any lump sum payment to be made from the Scheme to you or to an Australian superannuation fund on your behalf will be included in your assessable income. 'Applicable fund earnings', which refer to an increase or growth in the value of your vested benefit in the Scheme during the period in which you became an Australian resident, are calculated by:

· translating the amount received from the Scheme at the exchange rate applicable on the day of receipt into Australian dollars (AUD); and

· deducting from this amount the AUD equivalent of the amount of your vested benefit in the Scheme on the day immediately preceding the day on which you first became an Australian resident at the exchange rate applicable on that day.

If all your vested benefit in the Scheme is transferred as a single lump sum from the Scheme to a complying superannuation fund, you may choose for part or all of the amount of 'applicable fund earnings' contained in the single lump sum to be included in the assessable income of the complying superannuation fund.

Any amount of 'applicable fund earnings' you choose to be included in the assessable income of the complying superannuation fund will not be counted towards your concessional contributions cap or your non-concessional contributions cap. Any amount you do not choose to be so included will be counted towards your non-concessional contributions cap as non-concessional contributions.

The rest of the single lump sum, i.e., the amount net of 'applicable fund earnings', will be counted towards your non-concessional contributions cap as non-concessional contributions.

Detailed Reasoning

Lump sum payments made from a foreign superannuation fund

Any 'applicable fund earnings' in relation to a lump sum payment from a 'foreign superannuation fund that is received by a person more than six months after the person has become an Australian resident will be assessable under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997). The remainder of the lump sum payment is not assessable income and is not exempt income of the person.

'Applicable fund earnings' are the amount worked out under subsection 305-75(2) or (3) of the ITAA 1997, depending on the residency of the taxpayer during the period to which the lump sum relates. In your case, subsection 305-75(3) applies as you became an Australian resident after the start of the period to which the lump sum relates.

Before determining whether an amount is assessable under section 305-70 of the ITAA 1997, it is necessary to ascertain whether a lump sum payment is being made from a foreign superannuation fund. If the entity making the lump sum payment is not a superannuation fund, then section 305-70 will not apply to the lump sum payment. Some other appropriate provisions of the ITAA 1997 or the Income Tax Assessment Act  1936 may apply instead.

Foreign superannuation fund

A 'foreign superannuation fund' is defined in subsection 995-1(1) of the ITAA 1997 as follows:

(a) a superannuation fund is a foreign superannuation fund at a time if the fund is not an Australian superannuation fund at that time; and

(b) a superannuation fund is a foreign superannuation fund for an income year if the fund is not an Australian superannuation fund for the income year.

Subsection 295-95(2) of the ITAA 1997 defines 'Australian superannuation fund' as follows:

A superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if:

(a) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and

(b) at that time, the central management and control of the fund is ordinarily in Australia; and

(c) at that time either the fund had no member covered by subsection (3) (an active member) or at least 50% of:

(i) the total market value of the funds assets attributable to superannuation interests held by active members; or

(ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members;

is attributable to superannuation interests held by active members who are Australian residents.

Thus, a superannuation fund that is established outside of Australia and has its central management and control outside of Australia would prima facie be a 'foreign superannuation fund'. The fact that some of its members may be Australian residents would not necessarily alter this.

Superannuation fund

The term 'superannuation fund' is defined in subsection 995-1(1) of the ITAA 1997 as having the same meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SIS Act).

Subsection 10(1) of the SIS Act defines 'superannuation fund' as follows:

(a) a fund that:

(i) is an indefinitely continuing fund; and

(ii) is a provident, benefit, superannuation or retirement fund; or

(b) a public sector superannuation scheme

The High Court examined both the terms 'superannuation fund' and 'fund' in Scott v. Commissioner of Taxation of the Commonwealth (No. 2) (1966) 10 AITR 290; (1966) 40 ALJR 265; (1966) 14 ATD 333 (Scott). In that case, Justice Windeyer stated:

I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion fund, I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalised. I do not put this forward as a definition, but rather as a general description.

The issue of what constitutes a 'provident, benefit, superannuation or retirement fund' was discussed by the Full Bench of the High Court in Mahony v. Commissioner of Taxation (Cth) (1967) 41 ALJR 232; (1967) 14 ATD 519 (Mahony). In that case, Justice Kitto held that a fund had to exclusively be a provident, benefit or superannuation fund and that connoted a purpose narrower than the purpose of conferring benefits in a completely general sense.

This narrower purpose meant that the benefits had to be characterised by some specific future purpose such as the example given by Justice Kitto of a funeral benefit.

Under section 62 of the SIS Act, a regulated superannuation fund must be maintained solely for:

(a) one or more of the following purposes (the core purposes):

(i) the provision of benefits for each member of the fund on or after the member's retirement from any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged…

…

(iv) the provision of benefits in respect of each member of the fund on or after the member's death…

…

(b) for one or more of the core purposes and for one or more of the following purposes (the ancillary purposes):

(i) the provision of benefits for each member of the fund on or after the termination of the member's employment with an employer who had, or any of whose associates had, at any time, contributed to the fund in relation to the member;

(ii) the provision of benefits for each member of the fund on or after the member's cessation of work, if the work was for gain or reward in any business, trade, profession, vocation, calling, occupation or employment in which the member was engaged and the cessation is on account of ill-health (whether physical or mental);

…

Notwithstanding that the SIS Act applies only to regulated superannuation funds, as defined in section 19 of the SIS Act, and that foreign superannuation funds do not qualify as regulated superannuation funds as they are established and operate outside Australia, the Commissioner views the SIS Act (and its regulations) as providing guidance as to what 'benefit' or 'specific future purpose' a superannuation fund should provide.

Furthermore, though section 62 of the SIS Act also allows a superannuation fund to provide benefits for ancillary purposes, such as benefits paid on the termination of employment in the event of ill-health and benefits for dependants following the death of a member after retirement or attaining the prescribed age, it should be noted that they do not extend to general or non-retirement purposes such as facilitating a member to buy a home, start a business or migrate to another country.

Taking into account the legislation and the decisions made in Scott and Mahony, the Commissioner is of the 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.

In the trust deed by which the Scheme was established, it is stated that the main purpose of the Scheme is to provide Relevant Benefits for Employees and former Employees. 'Relevant Benefits' are defined in the rules of the Scheme as "benefits payable on the termination of service, ill-health, death or retirement. The rules also empowers the Trustee of the Scheme to allow a Member who has left service to transfer his/her benefits in the Scheme to another retirement benefits scheme.

The Commissioner has noted that the Scheme was registered under the law of a foreign country. The relevant provision that regulates the registration of occupational retirement schemes there states that:

· a "registered scheme" means 'an occupational retirement which is for the time being registered under the specified section; and

· an "occupational retirement scheme" means 'subject to subsection (6) any scheme, not being a contract of insurance under which benefits are payable only upon the death or disability of the insured, which:

(i) is comprised in one or more instruments or agreements; and

(ii) has or is capable of having effect in relation to one or more descriptions or categories of employment so as to provide benefits, in the form of pensions, allowances, gratuities or other payments, payable on termination of service, death or retirement, to or in respect of persons gainfully employed (whether in the specified country or elsewhere) under a contract of service in any employment…

The Commissioner accepts that the main purpose of the Scheme is analogous to the core and ancillary purposes as stated in section 62 of the SIS Act.

Section 14 of the SIS Act states that:

If the governing rules of a fund contain a provision the purpose of which is to avoid a breach of a rule of law relating to perpetuities, that provision does not prevent the fund from being treated as an indefinitely continuing fund for the purposes of the definition of approved deposit fund or superannuation fund in section 10.

By reason of section 14 of the SIS Act, the Commissioner also accepts that the Scheme should be treated as if it were an indefinitely continuing fund even though the trust established by the trust deed will terminate on the date after a specified number of years following the establishment of the trust pursuant to the laws of the other foreign country.

Having regard to all the above, the Commissioner is of the view that the Scheme is a foreign superannuation fund for the purposes of Subdivision 305-B of the ITAA 1997.

Foreign currency conversion

Subsection 960-50(1) of the ITAA 1997 states that:

For the purpose of this Act, an amount in a foreign currency is to be translated into Australian currency.

Item 11 of the table in subsection 960-50(6) of the ITAA 1997 and item 11A under sub-regulation 960-50.01(1) of the Income Tax Assessment Regulations 1997 provide that:

The rule in item 11A applies to the translation from the foreign currency into AUD of the value of your vested benefit in the Scheme just before the day you became an Australian resident. The rule in item 11 will apply to the translation of value as and when a lump sum is paid from the Scheme to you or to an Australian superannuation fund for your benefit.

Calculation of Assessable Amount

It is stated in section 305-60 of the ITAA 1997 that:

A superannuation lump sum you receive from a foreign superannuation fund is not assessable income and is not exempt income if:

(a) you receive it within 6 months after you become an Australian resident; and

…

(c) it does not exceed the amount in the fund that was vested in you when you received the payment.

As it is more than 6 months since you became an Australian resident, and as the current transfer value of your vested benefit in the Scheme exceeds that on the day immediately before you became an Australian resident, section 305-60 of the ITAA 1997 will not, therefore, apply to you in the event of your vested benefit in the Scheme being paid to you as one or more lump sums. Consequently, the 'applicable fund earnings' in relation to that (or those) lump sum(s) will be assessable to you under section 305-70 of the ITAA 1997.

While 'applicable fund earnings' are subject to tax at your personal marginal rate, the remainder of that (or those) lump sum(s) is not your assessable income nor your exempt income.

Subsections 305-75(3) to (6) of the ITAA 1997 states that:

(3) If you become an Australian resident after the start of the period to which the lump sum relates (but before you received it) the amount of your applicable fund earnings is 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 income 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).

(4) If the lump sum is not the first lump sum from the fund you have received to which this section applies, for subsections (2) and (3) the start day is the day after you received the most recent lump sum.

(5) You have an amount of previously exempt fund earnings in respect of the lump sum if:

(a) part or all of the amount in the fund that was vested in you when the lump sum was paid (before any deduction for foreign income tax) is attributable to the amount; and

(b) the amount is attributable to a payment received from a *foreign superannuation fund; and

(c) the amount would have been included in your assessable income under subsection 305-70(2) by the application of this section, but for the payment having been received by another foreign superannuation fund.

(6) The amount of your previously exempt fund earnings is the amount mentioned in paragraph (5)(c) (disregarding the addition of previously exempt fund earnings under subsection (2) or (3) of this section).

This calculation effectively means that you will be assessed only on the growth in the value of your vested benefit in the Scheme since you became an Australian resident. In other words, any contributions made by you or in respect of you, or any amounts that were transferred, into the Scheme after you became an Australian resident do not form part of your 'applicable fund earnings'.

Furthermore, any amounts representative of earnings/growth during periods of non-residency and any capital amounts previously transferred into the Scheme do not form part of your applicable fund earnings when a lump sum is paid.

It should be noted that section 305-70 of the ITAA 1997 applies even where a lump sum is paid into an overseas bank account.

From the facts provided, it would appear that no contributions or transfers have been made to the Scheme since you became an Australian resident and that there are no previously exempted fund earnings that needs to be accounted for when the vested benefit in the Scheme is paid to you.

The 'period' for the purposes of paragraph 305-75(3)(c) of the ITAA 1997 commences on the day on which you first became an Australian resident and will cease on the day your vested benefit in the Scheme is paid to you as one or more lump sums. If you have been an Australian resident and will continue to be so up to the day when your vested benefit in the Scheme is paid to you, your Australian residency as a proportion of the entire period is 1.

For illustration purpose, if you receive a lump sum 'A' from the Scheme today, the applicable fund earnings 'I' in your case will be calculated as follows:

Where 'applicable fund earnings' 'I' are less than zero, the lump sum you receive does not have any 'applicable fund earnings' as 'applicable fund earnings' cannot be less than zero.

Choice

A taxpayer, who transfers all their superannuation benefits by way of a lump sum from a foreign superannuation fund directly to a complying superannuation fund more than six months after becoming an Australian resident, may be able to choose under subsection 305-80(2) of the ITAA 1997 to have all or part of the applicable fund earnings that form part of the lump sum treated as assessable income of the complying superannuation fund, which will be taxed concessionally at 15%. This compares with the taxpayer otherwise including all or part of the applicable fund earnings in their own assessable income, which will be taxed at their personal marginal rate.

To qualify for the choice, you must, immediately after the entire amount of any lump sum is paid from the Scheme into a complying superannuation fund for your benefit, no longer have a superannuation interest in the Scheme, pursuant to subsection 305-80(1) of the ITAA 1997. Your choice must be in writing, must specify the amount to be covered by the choice and must comply with any requirements specified in the Income Tax Assessment Regulations 1997, pursuant to subsection 305-80(3) of the ITAA 1997.

Further issues for you to consider

Concessional contributions

Concessional contributions made to superannuation funds are subject to an annual cap. For the 20012-13 income year, the annual cap is $25,000.

The concessional contributions cap will be indexed to upward movements of average weekly ordinary time earnings (AWOTE) in $5,000 increments (subsection 292-20(2) of the ITAA 1997).

Concessional contributions include employer contributions and personal contributions claimed as a tax deduction by a self-employed person.

A person will be taxed on concessional contributions over the cap at a rate of 31.5% (section 292-15 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Concessional Contributions Tax) Act 2006).

If a person has more than one fund, all concessional contributions made to all their funds are added together and count towards the cap.

Amounts in excess of the concessional contributions cap are also counted towards a person's non-concessional contributions cap.

Section 292-25 of the ITAA 1997 determines what amounts are concessional contributions for a financial year. Under paragraph 292-25(2)(c) an amount mentioned in subsection 295-200(2) of the ITAA 1997 is excluded from being counted as concessional contributions. That amount refers to an amount transferred to a complying superannuation fund from a foreign superannuation fund as is specified in a choice made by a former member of the foreign superannuation fund under subsection 305-80 of the ITAA 1997.

In other words, if all your vested benefit in the Scheme is transferred to a complying superannuation by a single lump sum, and if you choose for all or part of the applicable fund earnings that form part of the single lump sum to be included in the assessable income of the complying superannuation fund, then the amount so included will not be counted towards your concessional contributions cap.

Where you choose for only part of the applicable fund earnings to be included in the assessable income of the complying superannuation fund with the remaining part being included in your own assessable income, that remaining part will be counted towards your non-concessional contributions cap pursuant to section 292-90 of the ITAA 1997.

Non-concessional contributions

Non-concessional contributions made to a complying superannuation fund will be subject to an annual cap (subsection 292-85(2) of the ITAA 1997). For the 2012-13 income year the annual cap is $150,000, being six times the concessional contributions cap of $25,000.

For the purposes of section 292-90 of the ITAA 1997, a transfer of superannuation benefit from a foreign superannuation fund to a complying superannuation fund for the benefit of a person, other than an amount of applicable fund earnings chosen by the person to be included in the assessable income of the complying superannuation fund, is treated as the taxpayer's non-concessional contributions and will be counted towards the taxpayer's non-concessional contributions cap.

A person will be taxed on any non-concessional contributions that exceed the cap at the rate of 46.5% (section 292-80 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Non-concessional Contributions Tax) Act 2006). The person will be required to ask their superannuation fund to release an amount that is equal to the tax liability (section 292-410 of the ITAA 1997).

As a concession to accommodate larger contributions, persons under age 65 in an income year are able to bring forward future entitlements to two years worth of non-concessional contributions. This means that a person under age 65 will be able to contribute non-concessional contributions totalling $450,000 over three income years without exceeding their non-concessional contributions cap (subsections 292-85(3) and (4) of the ITAA 1997).

The bring-forward will be triggered automatically when contributions in excess of the annual non-concessional contributions cap are made in an income year by a person who is under age 65 at any time in the year where a bring-forward has not already commenced (subsection 292-85(3) of the ITAA 1997). Where a bring-forward has been triggered, the two future years' entitlements are not indexed.

If, at the time of a transfer of your vested benefit in the Scheme to a complying superannuation fund as a lump sum, the lump sum (other than an amount of applicable fund earnings you choose to be included in the assessable income of the complying superannuation fund) exceeds $450,000, you will be liable for excess non-concessional contributions tax for the excess amount of contributions.

Fund-capped contributions

Under paragraph 7.04(3)(a) of the Superannuation Industry (Supervision) Regulations 1994 (SISR), a regulated superannuation fund must not accept any fund-capped contributions in a financial year in respect of a member that exceed:

(a) if the member is 64 or less on 1 July of the financial year - three times the amount of the non-concessional contributions cap; or

(b) if the member is 65 but less than 75 on 1 July of the financial year - the non-concessional contributions cap.

As defined in sub-regulation 7.04(4) of the SISR, 'Fund-capped contributions' are member contributions other than:

· contributions to which a valid and acknowledged notice under section 290-170 of the ITAA 1997 relates;

· contributions arising from a structured settlement or an order for personal injury;

· contributions relating to some capital gains tax (CGT) small business concessions to the extent that it does not exceed the CGT cap amount ($1,000,000 indexed annually) when it is made;

· a payment made by the Commissioner of Taxation under section 65 of the Superannuation Guarantee (Administration) Act 1992;

· a payment made by the Commissioner of Taxation under section 61 or 61A of the Small Superannuation Accounts Act 1995;

· a Government co-contribution made under the Superannuation (Government Co-contribution for Low Income Earners) Act 2003;

· a contribution that is a directed termination payment within the meaning of section 82-10F of the Income Tax (Transitional Provisions) Act 1997.

Under sub-regulation 5.01(1) of the SISR, "member contributions", in relation to a member of a regulated superannuation fund, means:

contributions by, or on behalf of, the member to the fund, but does not include employer contributions made in respect of the member

As a transfer from a foreign superannuation fund to a complying superannuation fund for the benefit of a member of the complying superannuation fund is 'a contribution by or on behalf of the member' it is a member contribution. As it is a member contribution and does not fall within any of the exclusions listed in paragraph 7.04(4) of the SISR, it is also a 'fund-capped contribution, which is limited to three times the amount of the non-concessional contributions cap, i.e. $450,000, if the member is 64 years of age or less.

It follows that if, at the time of a transfer of your vested benefit in the Scheme to a complying superannuation fund by a lump sum, the lump sum exceeds $450,000, the complying superannuation fund will not be able to accept the amount transferred because of sub-regulation 7.04(3) of the SISR.

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