Edited version of your written advice

Authorisation Number: 1051321974624

Date of advice: 29 January 2018

Ruling

Subject: Lump sum payments from a foreign superannuation fund

Question

For the purposes of section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997), is the Overseas Pension Scheme a foreign superannuation fund?

Answer

Yes.

Question

Can the full commutation amount from the Fund be transferred into an Australian complying superannuation fund?

Answer

Yes.

Question

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

Answer

The Commissioner cannot make a ruling on this issue. General advice is provided instead.

Question

Are the applicable fund earnings assessable in the income year in which they were received at the Taxpayer’s marginal rates?

Answer

The Commissioner cannot make a ruling on this issue. General advice is provided instead.

This ruling applies for the following periods:

Income year ending 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

A person (the Taxpayer) was employed by an overseas employer (the Employer).

More than ten years ago, the Taxpayer emigrated overseas and ceased to be a resident of Australia for tax purposes.

A few years after, the Taxpayer joined the Overseas Pension Scheme (the Fund), which is domiciled overseas. The Fund is a defined benefits pension fund.

Benefits from the Overseas Pension Scheme can only be access upon retirement, death or invalidity.

In the 2004-05 income year, the Taxpayer returned to Australia and became a resident of Australia for tax purposes.

No rollovers or contributions were made into the Fund.

In the 2012-13 income year, the Taxpayer emigrated overseas and ceased to be a resident of Australia for tax purposes.

In the 2015-6 income year, the Taxpayer returned to Australia and once again became a resident of Australia for tax purposes.

In the 2016-17 income year, the Taxpayer’s employment with the Employer was terminated.

The Taxpayer intends to transfer their benefits from the Fund to their Australian bank account. To date, they have not yet made the transfer.

The Taxpayer’s is over the age of 60

Relevant legislative provisions

Taxation Administration Act 1953 Subsection 259-35(1)

Taxation Administration Act 1953 Subsection 359-5(1) of Schedule 1

Taxation Administration Act 1953 Section 359-35 of Schedule 1

Income Tax Assessment Act 1936 Section 97

Income Tax Assessment Act 1936 Section 99B

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Subsection 6-10(4)

Income Tax Assessment Act 1997 Section 10-5

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

Income Tax Assessment Act 1997 Section 305-70

Income Tax Assessment Act 1997 Section 305-75

Income Tax Assessment Act 1997 Subsection 305-75(2)

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

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

Income Tax Assessment Act 1997 Section 306-10

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)

Superannuation Industry (Supervision) Act 1993 Section 10

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

Superannuation Industry (Supervision) Act 1993 Section 42

Superannuation Industry (Supervision) Act 1993 Section 62

Superannuation Industry (Supervision) Act 1993 Paragraph 62(b)

Superannuation Industry (Supervision) Regulations 1994 Regulation 7.04

Reasons for decision

Question 1

Summary

The Fund is a foreign superannuation fund for the purposes of section 305-70 of the ITAA 1997.

Detailed reasoning

Meaning of ‘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.

Relevantly, 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 fund’s 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 qualify as a foreign superannuation fund. The fact that some of its members may be Australian residents would not necessarily alter this.

Meaning of ‘superannuation fund’

‘Superannuation fund’ is defined in subsection 995-1(1) of the ITAA 1997 as having the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA).

Subsection 10(1) of the SISA provides that:

superannuation fund means:

(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.

Meaning of ‘provident, benefit, superannuation or retirement fund’

In section 62 of the SISA, a regulated superannuation fund must be ‘maintained solely’ for the purposes of providing benefits to a member when the events occur:

● on or after retirement from gainful employment; or

● attaining a prescribed age; and

● on the member’s death (this may require the benefits being passed on to a member’s dependants or legal representative).

In addition, paragraph 62(b) of the SISA allows for a regulated superannuation fund to be maintained solely for one or more of the core purposes and for one or more of the following ancillary purposes of providing benefits to a member when the events occur:

● on or after the member’s termination of employment with an employer who had, at any time, contributed to the fund in relation to the member;

● the cessation of work and the cessation is due to ill-health (whether physical or mental);

● on the member’s death (this may require the benefits being passed on to a member’s dependants or legal representative).

Notwithstanding the SISA applies only to ‘regulated superannuation funds’ (as defined in section 19 of the SISA), and foreign superannuation funds do not qualify as regulated superannuation funds as they are established and operate outside Australia, the Commissioner views the SISA (and the Superannuation Industry (Supervision) Regulations 1994 (SISR)) as providing guidance as to what ‘benefit’ or ‘specific future purpose’ a superannuation fund should provide.

In this case, information provided indicates the Taxpayer’s benefits in the Fund are only payable on retirement, the attainment of a prescribed age and death. As you have highlighted, certain regulations under the Deed (for example, Regulation 21 and Regulation 22) respectively provide for the payment of a pension in circumstances due to early retirement due to ill-health or redundancy and early retirement due to incapacity (physical or mental). The payment of benefits in such circumstances does not change the nature or purpose of the Fund. The payment of such benefits is in the nature of superannuation styled benefits permitted under the SISA. There are no clauses or Regulations under the Deed which allow for the release or withdrawal of benefits at any time and for non-retirement purposes. The Fund therefore meets the definition of ‘superannuation fund’ for Australian income tax purposes.

In addition, it is clear the payer of the lump sum payment is established outside of Australia with its central management and control outside of Australia. Therefore, on the basis of the information provided, the Commissioner considers any proposed lump sum payment from this Fund to be received by Your Client, as a payment from a foreign superannuation fund as defined in subsection 995-1(1).

Question 2

Lump sum payments transfer from foreign superannuation funds

A taxpayer may make a transfer from an overseas foreign pension scheme to an Australian superannuation fund if the overseas pension scheme is a ‘foreign superannuation fund.’

A ‘foreign superannuation fund’ is defined in subsection 995-1(1) of the ITAA 1997 as a superannuation fund that is not an Australian superannuation fund for the income year.

In this instance, the Commissioner considers that the International Pension Fund is a foreign superannuation fund.

Conditions of Accepting Contributions

Subregulation 7.04(1) of the SISR deals with the acceptance of contributions by regulated superannuation funds.

Item 1 of the table under subregulation 7.04(1) of the SISR states that if the member is under 65, the fund may accept contributions made in respect of the member.

Item 2 of the table states that if the member is not under 65 but is under 70, the fund may accept member contributions in respect of the member if the member has been gainfully employed on at least a part-time basis during the income year in which the contributions are made. This is known as the work test.

Under subregulation 1.03(1) of the SISR 'gainfully employed' means:

employed or self employed for gain or reward in any business, trade, profession, vocation, calling, occupation or employment.

In this instance, the Taxpayer is under 65 therefore, the Taxpayer may roll-over their foreign superannuation into an Australian complying superannuation fund.

Subject to sections 291-25 and 292-90 of the ITAA 1997, any amounts rolled-over into an Australian superannuation fund may count towards a person’s concessional and/or non-concessional contributions caps for an income year.

Question 3 and 4

Subsection 259-35(1) of the Taxation Administration Act 1953 (TAA 1953) requires the Commissioner to comply with an application for a private ruling and make the ruling. However, in the interest of allowing the Commissioner to focus efforts on increasing certainty for entities in the most genuine and worthy cases, the Commissioner may decline to rule in accordance with subsection 359-35(2) and (3) of the TAA 1953.

Situations where the Commissioner may decline to rule are discussed in paragraphs 39 and 40 of the Taxation Ruling TR 2006/11 Private Rulings and, relevantly, include situations where the Commissioner considers that the correctness of the private ruling would depend on assumptions about a future event. Therefore, we will not be making a private ruling in respect of Question 3 in your application because the correctness of the ruling would depend on making a number of assumptions about future events and other matters including the following:

● the date(s) of any future transfer(s); and

● the applicable foreign exchange rates on the date of transfer(s);

A decision to decline to make a ruling is reviewable under the Administrative Decisions (Judicial Review) Act 1977. For further information about your review rights, please read the explanatory notes attached to this letter.

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).