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Edited version of your written advice
Authorisation Number: 1051228984479
Date of Advice: 24 May 2017
Ruling
Subject: Lump sum payments from a foreign superannuation fund
Question
Is any part of the lump sum payments received by a person who has died (the Deceased) from an overseas superannuation fund (the Fund) not assessable and not exempt income under section 303-10 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
No.
This ruling applies for the following periods:
Income year ended 30 June 2013
The scheme commences on:
1 July 2012
Relevant facts and circumstances
The Deceased worked in an overseas country before becoming an Australian citizen 10 years ago.
The Deceased was, prior to their death, a member of a pension scheme (the Fund) established and controlled in the overseas country.
A few years ago, the Deceased was diagnosed with a terminal illness and retired from employment.
Less than a year later, the Deceased died.
Before the Deceased died, they received two lump sum payments from the Fund.
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 295-95(2).
Income Tax Assessment Act 1997 Section 303-10.
Income Tax Assessment Act 1997 Subsection 995-1(1).
Income Tax Assessment Regulations 1997 Subregulation 995-1.01(1)
Superannuation Industry (Supervision) Act 1993 Section 19
Superannuation Industry (Supervision) Act 1993 Section 42
Superannuation Industry (Supervision) Act 1993 Section 45
Reasons for decision
Summary
Superannuation lump sum payments received by the Deceased from the Fund are not 'terminal medical condition' payments because the Fund is not a complying superannuation fund for the purposes of section 303-10 of the ITAA 1997.
Accordingly, superannuation lump sum payments received by the Deceased from the Fund are not tax-free under section 303-10 of the ITAA 1997.
Detailed reasoning
Under section 303-10 of the ITAA 1997, a superannuation lump sum is not assessable income and is not exempt income if a 'terminal medical condition' exists in relation to the recipient when it is received, or within 90 days after receiving it. This applies to a superannuation member benefit that is a superannuation lump sum and is:
i. paid from a complying superannuation plan; or
ii. a superannuation guarantee payment, a small superannuation account payment, an unclaimed money payment, a superannuation co-contribution benefit payment or a superannuation annuity payment.
In accordance with subsection 995-1(1) of the ITAA 1997 and subregulation 995-1.01(1) of the Income Tax Assessment Regulations 1997 (ITAR 1997), 'terminal medical condition' has the meaning given by regulation 303-10.01 of the ITAR 1997 which provides that a person has a terminal medical condition if:
(a) two registered medical practitioners have certified, jointly or separately, that the person suffers from an illness, or has incurred an injury, that is likely to result in the person's death within 24 months after the date of the certification;
(b) at least one of the registered medical practitioners is a specialist practising in an area related to the illness or injury suffered by the person; and
(c) for each of the certificates, the 24-month period has not ended.
Relevantly, 'complying superannuation plan' is defined in subsection 995-1(1) of the ITAA 1997 to mean:
(a) a complying superannuation fund; or
(b) a public sector superannuation scheme that is:
(i) a regulated superannuation fund; or …
By virtue of subsection 995-1(1) of the ITAA 1997, 'complying superannuation fund' and 'regulated superannuation fund' have the meaning given by the Superannuation Industry (Supervision) Act 1993 (SISA) - sections 45 and 19 respectively.
In general terms, section 45 of the SISA requires that the fund be covered by a compliance notice given by the Commissioner of Taxation (the Commissioner) or APRA; and section 19 of the SISA requires the trustee of the fund to elect that SISA is to apply in relation to the fund.
Broadly, under the SISA, a superannuation fund will receive a complying fund notice from APRA or the Commissioner if:
● the fund is a resident regulated superannuation fund (that is, a regulated superannuation fund that is an Australian superannuation fund within the meaning of ITAA 1997); and
● the fund has met the prescribed conditions to be a complying superannuation fund for the purposes of the SISA (section 42 of the SISA).
In accordance with subsection 295-95(2) of the ITAA 1997, a superannuation fund is an 'Australian superannuation fund' at 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 …
Based on the above, the Fund is not a resident regulated superannuation fund because it was established and controlled in the overseas country not in Australia. Consequently, it is not a complying superannuation fund for the purposes of section 303-10 of the ITAA 1997.
Accordingly, superannuation lump sum payments received by the Deceased from the Fund cannot be treated as non-assessable non-exempt income of the Deceased (that is, payments are not tax-free) under section 303-10 of the ITAA 1997.
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