Edited version of private advice

Authorisation Number: 1051786041602

Date of advice: 01 December 2020

Ruling

Subject: Lump sum payment from a foreign superannuation fund

Question

Will Flexible Access Drawdown payments from your UK pension scheme be taxed in Australia as lump sum payments pursuant to section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. The payments in this case meet the definition of a lump sum and will be taxed in accordance with Subdivision 305-B of the ITAA 1997.

This ruling applies for the following period:

1 July 2013 to 30 June 2021

Relevant facts and circumstances

You became an Australian resident in mid-late199x.

In late 201x you commenced a Flexible Access Drawdown (FAD) from your United Kingdom pension fund (UK Fund A) and withdrew an amount as a pension commencement lump sum (PCLS).

In late 201x you received a FAD payment.

In early 201y you transferred your benefits from UK Fund A to UK Fund B.

In early- mid 201y you requested and received a FAD payment - another FAD payment was received in mid-late 201z.

You are considering withdrawing the entire benefit from UK Fund B and transferring the money to Australia as one payment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 305-B

Income Tax Assessment Act 1997 section 305-70

Income Tax Assessment Act 1997 section 307-65

Income Tax Assessment Act 1936 section 27H

Superannuation Industry (Supervision) Regulations 1994 subregulation 1.06(1)

Superannuation Industry (Supervision) Regulations 1994 subregulation 1.06(9A)

Case law

Tubemakers of Australia Ltd v Federal Commissioner of Taxation [1993] FCA 175

Reasons for Decision

A superannuation lump sum is a superannuation benefit that is not a superannuation income stream benefit pursuant to section 307-65 of the ITAA 1997.

The phrase 'income stream' was considered in the case of Tubemakers of Australia Ltd v Federal Commissioner of Taxation [1993] FCA 175 (Tubemakers case). In light of the Tubemakers case, the Commissioner considers the phrase 'income stream' refers to a series of periodic (including a series of annual) payments made from a member's interest in the superannuation fund over an identifiable period of time. A liability to make a single payment for one year would not constitute an income stream.

The series of periodic payments envisaged in the Tubemakers case would also need to satisfy the requirements of subregulation 1.06(1) and by extension subregulation 1.06(9A) of the Superannuation Industry (Supervision) Regulations 1994 (SISR).

Subregulation 1.06(9A) of the SISR requires amongst other things that the payment of the pension is made at least annually.

While PCLS and subsequent FAD payments are considered pensions by the UK authority, such a classification cannot be sustained under Australian law. In this case a PCLS and FAD payment was made in the 201x year of income and no further withdrawals were made until early-mid 201y and mid-late 201z. The payments in question do not constitute a series of periodic payments over an identifiable period. You are also currently considering transferring the entire benefit in UK Fund B to Australia. This payment would be akin to a full commutation of a pension entitlement.

For these reasons the payments are considered lump sum payments and should be taxed accordingly under section 305-70 of the ITAA 1997.

When a person receives a lump sum from a foreign superannuation fund more than six months after they became an Australian resident, the growth they earned on their foreign superannuation during the period when they were a resident of Australia is included in their assessable income as 'applicable fund earnings' under section 305-70 of the ITAA 1997.

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