Edited version of private advice

Authorisation Number: 1052189418157

Date of advice: 24 November 2023

Ruling

Subject: Assessable income

Question 1

Is the entity a 'foreign superannuation fund' as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Does the lump sum pension payment from the entity received by the taxpayer form part of her assessable income under section 6-5 of the ITAA 1997 and therefore need to be disclosed in her 2022 Australian income tax return?

Answer

Yes.

This ruling applies for the following period:

Financial year ended 30 June 2022

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

The taxpayer was a resident of UK until 20XX.

The taxpayer moved to New Zealand for one year before moving to Australia permanently in 2001 as a permanent resident of Australia for tax purposes.

The taxpayer received a lump sum payment, which included a pension payment and a graduated retirement benefit, after becoming an Australian resident for tax purposes.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 159ZR(1)

Income Tax Assessment Act 1936 subsection 159ZRA(1)

Income Tax Assessment Act 1997 subsection 6-5(2)

Income Tax Assessment Act 1997 section 995-1

Superannuation Industry (Supervision) Act 1993 section 62

Reasons for decision

Issue 1

Assessable income of an Australian resident taxpayer

Question 1

Is the entity a 'foreign superannuation fund' as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

No, the entity does not meet the requirements to be considered a foreign superannuation fund.

Detailed reasoning

A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as being a fund that is not an Australian superannuation fund. A superannuation fund has the meaning given by subsection 10(1) of the Superannuation Industry (Supervision) Act 1993 (SISA), which requires that the fund is a 'provident, benefit, superannuation or retirement fund'.

In section 62 of the SISA, a regulated superannuation fund must be 'maintained solely' for the 'core 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).

The Commissioner's view is that for a fund to be classified as a superannuation fund, it must exclusively provide a narrow range of benefits that are characterised by some specific future purpose. That is, the payment of superannuation benefits upon retirement, invalidity or death of the individual or as specified under the SISA.

The operation of the entity contrasts to the operation of a regulated superannuation fund which must be maintained solely to provide a narrow range of benefits in relation to retirement, reaching a prescribed age and on the member's death.

Accordingly, the entity is not a foreign superannuation fund.

Question 2

Does the lump sum pension payment from the entity received by the taxpayer form part of her assessable income under section 6-5 of the ITAA 1997 and therefore need to be disclosed in her 2022 Australian income tax return?

Summary

Yes, the lump sum pension payment from the entity received by the taxpayer is assessable income and needs to be disclosed in the taxpayer's 2022 Australian income tax return

Detailed reasoning

Assessable income

Subsection 6-5(2) of the ITAA 1997 explains that the assessable income of an Australian resident taxpayer includes ordinary income received directly or indirectly from all sources, whether in or out of Australia, during a financial year.

Pension income falls within ordinary income and is assessable under the legislation.

In determining liability to Australian tax on foreign sourced income it is necessary to consider not only the Australian income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (the Agreements Act).

An amount received as a pension is ordinary income and forms part of your assessable income in the year it is received.

Accordingly, as the taxpayer is an Australian resident her assessable income will include her pension income from an overseas source.

Lump sum payment in arrears

Income in the nature of employment income and pension income is generally derived only when received. Accordingly, back payments of income that relate to an earlier income year or years will be assessable only in the year of receipt.

Section 159ZRA of the Income Tax Assessment Act 1936 (ITAA 1936) allows an income tax offset in relation to certain lump sum payments that accrued in a prior year or years.

The lump sum payment in arrears tax offset is designed to alleviate the problem of more tax being payable in the year in which the lump sum payment is received than would have been payable if the lump sum payment had been taxed in the years in which it accrued.

The taxpayer is eligible to claim the offset in relation to the deferred foreign lump sum pension amount received in the 2022 income tax year.

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