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This edited version has been archived due to the length of time since original publication.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: 1051277474019

Date of advice: 5 September 2017

Ruling

Subject: Lump sum payment from a foreign superannuation fund

Question 1

Is any part of the lump sum received by the Taxpayer from their foreign superannuation fund assessable as applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

The Commissioner declines to rule. General advice is provided.

Question 2

Is the Taxpayer entitled to a Foreign Income Tax Offset?

Answer

Yes.

This ruling applies for the following period:

Income year ending 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

You migrated to Australia from a foreign country and became a resident of Australia for taxation purposes.

Subsequently, you became an Australian citizen.

While living in a foreign country, you were a member of a foreign superannuation fund (the Fund).

The Fund was established and is administered in the foreign country.

Benefits provided by the Fund can only be withdrawn in the following circumstances:

There have been no contributions or transfers into the Fund since you became a resident of Australia for tax purposes.

More than ten years later, you were notified by the Fund that you would receive a lump sum payment.

Relevant legislative provisions

Agreement between the Government of Australia and the Government of the foreign country for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, and Protocol- Article 21

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

Income Tax Assessment Act 1997 Subdivision 305-B

Income Tax Assessment Act 1997 section 305-60

Income Tax Assessment Act 1997 section 305-70

Income Tax Assessment Act 1997 section 305-75

Income Tax Assessment Act 1997 section 960-50

Income Tax Assessment Act 1997 Subsection 770-10(1)

Income Tax Assessment Act 1997 section 770-75

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

Reasons for decision

Question 1

Subsection 359-35(2) of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that a private ruling does not have to be given if making the ruling would prejudice or unduly restrict the administration of a taxation law. This includes where the scheme, to which the application relates is not seriously contemplated or hypothetical or where insufficient information is provided

You were not able to provide us with the amount vested in you in the Fund on the day before you became a resident. Consequently, we are unable to calculate the applicable fund earnings payable on your lump sum payment from the Fund.

Based on the above, the Commissioner has declined to make a private ruling on whether your lump sum payment from a foreign superannuation fund is assessable as applicable fund earnings.

Question 2

Summary

You are entitled to claim a Foreign Income Tax Offset (FITO) in your Australian tax return.

In your case you will need to include an amount of $X,XXX (equivalent to foreign country currency amount) in your assessable income.

Detailed reasoning

If you are an Australian resident for tax purposes, you are taxed on your worldwide income, so you must declare any foreign income in your income tax return.

As your foreign income may also be taxed in the source country, it is potentially subject to double taxation. To overcome this, Australia has a system of credits and exemptions and has signed tax treaties with more than 40 countries, including all our major trade and investment partners.

Article XX of the Agreement between the Government of Australia and the Government of the foreign country for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income, and Protocol looks at ‘other income’ and states that income received by an Australian resident is taxable in Australia and in the foreign country.

You may claim a Foreign Income Tax Offset (FITO) in your Australian income tax return. The tax offset has the effect of reducing the Australian tax that would otherwise be payable on the double-taxed amount. A FITO is a non-refundable tax offset.

Foreign income tax offset

Subsection 770-10(1) of the ITAA 1997 provides the basic entitlement rule for a foreign income tax offset (FITO) and states:

You are entitled to a tax offset for an income year for foreign income tax. An amount of foreign income tax counts towards the tax offset for the year if you paid it in respect of an amount that is all or part of an amount included in your assessable income for the year.

To determine the amount of FITO in any particular year, a person must first calculate the total foreign income tax paid on amounts included in their assessable income for the year. In your case you will need to include an amount of $X,XXX (equivalent to foreign country currency amount) in your assessable income.

The tax offset has the effect of reducing the Australian tax that would otherwise be payable on the double-taxed amount. A FITO is a non-refundable tax offset.

The FITO rules do not allow for the carry forward of excess foreign tax. This means that all available FITOs will need to be utilised in the year in which they arise. There will be no opportunity to carry them forward for use against future Australian tax on foreign income.

Furthermore, there is a FITO limit. Where the total foreign income tax paid by a person is less than or equal to $1,000, the person is not required to calculate the FITO, i.e. the person's FITO will equal the foreign income tax paid on amounts included in the their assessable income.

Where the total foreign income tax paid is more than $1,000, the person can choose to offset only $1,000 of foreign tax (and not formally calculate the FITO entitlement) or calculate the offset limit to determine the maximum FITO entitlement under section 770-75 of the ITAA 1997.

Note

Further information regarding calculating a FITO can be obtained from the booklet entitled Guide to foreign income tax offset rules 2016 (NAT 72923) which can be obtained from the ATO website www.ato.gov.au.

Decline to rule – explanatory notes

Your review rights

If the Commissioner declines to make a private ruling, we must give you reasons for the decision. This decision may be reviewable under the Administrative Decisions (Judicial Review) Act 1977 (ADJR).

The ADJR provides you with two main rights.

1 You can send a written notice to the Commissioner requiring us to provide a written statement of:

2 You may be able to apply to the Federal Court of Australia or the Federal Magistrates Court for a review of the decision.

Review by the Federal Court or the Federal Magistrates Court

If you decide to apply to the Federal Court or the Federal Magistrates Court for a review of the decision, we suggest you seek professional advice about how to proceed. In addition, the Court will be able to provide you with some direction and assistance about the process. Any such application must be lodged within 28 days of the day on which the decision was made. Your appeal may involve a number of fees.

You may lodge your application for review at the Federal Court or Federal Magistrates Court in the State or Territory in which you ordinarily reside, or the State or Territory listed in the address for the Tax Office as shown on your written notice of advice.

You can find more information on the Federal Court website: www.fedcourt.gov.au, or the Federal Magistrates Court website: www.fmc.gov.au

Freedom of information

The Freedom of Information Act 1982 (FOI Act) gives you a legal right to access certain documents relating to this decision held by the Tax Office.

Requests for access under this Act must:

The Tax Office may refuse you access to some documents, or portions of documents, that are subject to exemption provisions. There are rights of review should you disagree with this decision.

For further information about access to documents under the FOI Act or to obtain a Freedom of Information request form please refer to the contact numbers listed below.

Contact numbers

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If you do not speak English and need help from the Tax Office, phone the Translating and Interpreting Service on 13 14 50.

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