| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your written advice
Authorisation Number: 1013120934040
Date of advice: 9 November 2016
Ruling
Subject: Taxation of death benefit payment
Questions and answers
1. Is the taxable portion of a superannuation lump sum death benefit payment made to you included in your Australian assessable income as a non-resident, non-dependent beneficiary?
Yes
2. If you do not supply your tax file number to the superannuation fund, should the fund withhold at the maximum marginal rate of tax on the taxable component?
Yes
3. Are you entitled to a tax offset to ensure that the rate of tax payable on the taxed element of the taxable component will not exceed 15%?
Yes
4. Do you need to apply for a tax file number and lodge a tax return in order to receive a refund of some of the tax withheld by the superannuation fund?
Yes
This ruling applies for the following periods:
Year ended 30 June 20YY
Year ended 30 June 20ZZ
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are an Australian citizen.
You are a resident of Country X and have been so for over 20 years.
You have never had an Australian tax file number as you have no Australian income.
Your relative passed away.
You are one of the non-dependent beneficiaries of your relative's Australian superannuation fund and will receive a lump sum death payment.
You have been advised by the superannuation fund that unless you provide your tax file number, you will have tax withheld from the taxable portion of your lump sum death payment at the highest marginal rate of tax.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 6-5(3)
Income Tax Assessment Act 1997 Subdivision 302-C
Income Tax Assessment Act 1997 Section 302-140
Income Tax Assessment Act 1997 Subsection 302-145(2)
International Tax Agreements Act 1953
Reasons for decision
A non-resident of Australia is assessed on income derived from all sources in Australia (subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997)).
Double Taxation Agreements
The tax laws of different countries may mean that the income of an individual can be taxed in the country where that individual resides as well as the country in which the individual derived that income. To reduce this possibility, Australia has entered into a number of agreements with other countries to prevent this double taxation. These agreements are given legal force by the International Tax Agreements Act 1953 (the Agreements Act).
Each agreement contains rules to establish which country has taxing rights over a particular type and source of income specified in the agreement. However, sometimes whilst the agreement of one country may state that it has the taxing right on a particular source of income, that agreement can state that the other country may also tax the same income.
Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).
Section 5 of the Agreements Act lists the current double tax agreements Australia has with other countries. Included in that list is the tax treaty between Australia and Country X (the Country X Agreement).
There is no article contained in the Country X Agreement that specifically refers to lump sum payments from superannuation funds.
Consequently, as there is nothing contained in the Country X Agreement that precludes Australia from taxing lump sum payments from superannuation funds, then it may be taxed subject to Australia's taxation laws.
Subdivision 302-C of the ITAA 1997 applies to superannuation lump sums paid on the death of an individual to a non-dependant and provides:
● the tax-free component is not assessable (section 302-140 of the ITAA 1997)
● a tax offset will ensure that the rate of tax payable on the taxed element of the taxable component of the superannuation death benefit will not exceed 15% (subsection 302-145(2) of the ITAA 1997).
Where a person does not have a tax file number (TFN) tax is withheld tax at the highest marginal tax rate. Foreign residents are not required to pay the Medicare levy.
In your case, you may be entitled to a refund for some or all of the tax withheld. To make a claim you will need to complete and lodge a tax return for the relevant income year. In order to lodge a tax return you will need to apply for a TFN first.
Copyright notice
© Australian Taxation Office for the Commonwealth of Australia
You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).
