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Edited version of private advice

Authorisation Number: 1051787942648

Date of advice: 08 December 2020

Ruling

Subject: Lump sum payment from a foreign super fund

Question

Is any part of the death benefit paid to you from the foreign pension scheme on the death of your father included in your assessable income as applicable fund earnings under section 305-75 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Financial year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

•         The Taxpayer's parent passed away and a death benefit lump sum was paid by the foreign pension scheme to the Taxpayer in the financial year ended 30 June 20XX.

•         The Taxpayer was in dispute with the foreign pension scheme as to the amount for the death benefit, as a result, the foreign pension scheme paid a further lump sum cash amount on XX XXXX 20XX.

•         No payment summary was sent with the payment, nor was any foreign tax paid on the amount.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 305-70.

Income Tax Assessment Act 1997 Subsection 307-5(1)

Income Tax Assessment Act 1997 Section 307-65

Reasons for Decision

Summary

A superannuation death benefit is tax-free in Australia only when it is paid by a complying Australian superannuation fund and to a dependant of the deceased.

The lump sum death benefit received as a result of the death of a fund member from a foreign superannuation fund (which is not a complying Australian superannuation fund), therefore, the entire amount is assessable as 'applicable fund earnings' in the 20XX-XX income year.

Detailed reasoning

A superannuation lump sum is described in section 307-65 of the Income Tax Assessment Act 1997 (ITAA 1997) as a superannuation benefit that is not a superannuation income stream. The table contained in subsection 307-5(1) identifies the different types of superannuation benefits. One such payment is a superannuation death benefit.

A superannuation death benefit is described in Column 3 of item 1 of the table in subsection 307-5(1) of the ITAA 1997 as:

A payment to you from a superannuation fund, after another person's death, because the other person was a fund member.

A death benefit payment made by a superannuation fund is tax-free in Australia only when it is paid:

•         by a complying Australian superannuation fund, and

•         to a dependant of the deceased.

In your case, the Fund paid the death benefit is a foreign superannuation fund established overseas. Foreign superannuation funds are not regulated in Australia, and so cannot be complying superannuation funds.

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

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