Edited version of private ruling

Authorisation Number: 1011487259911

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Ruling

Subject: Foreign Superannuation Lump Sum Payment

Question

Is any part of the lump sum payment you received from your foreign pension fund assessable under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You became a member of the scheme.

You received a lump sum payment from the scheme more than six months after you became a resident of Australia for tax purposes.

No amounts were contributed to the scheme by you or on your behalf after you became a resident.

No amounts were transferred to the scheme from any other scheme or fund after you became a resident.

You are also in receipt of a monthly pension from the scheme.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 295-95

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

Income Tax Assessment Act 1997 section 305-70

Income Tax Assessment Act 1997 subsection 305-70(1)

Income Tax Assessment Act 1997 subsection 305-70(2)

Income Tax Assessment Act 1997 section 305-75

Income Tax Assessment Act 1997 subsection 305-75(1)

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

Income Tax Assessment Act 1997 subsection 960-50(1)

Income Tax Assessment Act 1997 subsection 960-50(6)

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Regulations 1997 regulation 960-50.01

Reasons for decision

Summary

A part of any lump sum payment from your foreign superannuation fund, that you receive more than six months after you become a resident of Australia for tax purposes, is included in your assessable income. This assessable part is called 'applicable fund earnings'.

As you became a resident of Australia for tax purposes more than six months before you received the lump sum payment from your foreign pension fund, the payment contains applicable fund earnings. This amount is to be included in your assessable income for the 2009-10 income year.

Detailed reasoning

From 1 July 2007, the applicable fund earnings in relation to a lump sum payment from a foreign superannuation fund, that is received or transferred more than six months after a person has become an Australian resident, will be assessable under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997). The applicable fund earnings are subject to tax at the person's marginal rate. The remainder of the lump sum payment is not assessable income and is not exempt income.

The applicable fund earnings is the amount worked out under either subsection 305-75(2) or (3) of the ITAA 1997. Subsection 305-75(2) of the ITAA 1997 applies where the person was an Australian resident at all times during the period to which the lump sum relates. Subsection 305-75(3) of the ITAA 1997 applies where the person was not an Australian resident at all times during the period to which the lump sum relates.

Foreign superannuation fund

A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as follows:

- a superannuation fund is a foreign superannuation fund at a time if the fund is not an Australian superannuation fund at that time; and

- 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.

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:

- the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and

- at that time, the central management and control of the fund is ordinarily in Australia; and

- at that time either the fund had no member covered by subsection (3) (an active member) or at least 50% of:

- the total market value of the funds assets attributable to superannuation interests held by active members; or

- 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.

In the present case, it is evident that the Scheme is not an Australian superannuation fund as defined in subsection 295-95(2) of the ITAA 1997. The Scheme is, however, considered to be a foreign superannuation fund.

Calculation of Assessable Amount

As noted above, the applicable fund earnings in relation to a lump sum payment from a foreign superannuation fund will be included in a person's assessable income where the payment is received more than six months after becoming an Australian resident.

In your case you received the payment more than six months after you became a resident of Australia for tax purposes. Therefore, a portion of your lump sum payment will be assessable under section 305-70 of the ITAA 1997.

The calculation effectively means that you will be assessed only on the income earned in the fund while you were a resident of Australia. That is, you will only be assessed on the accretion in the fund less any contributions made since you became a resident of Australia.

Further, any amounts representative of earnings during periods of non-residency and transferred into the paying fund do not form part of the taxable amount when the overseas benefit is paid.

The amount included as assessable income, is worked out under subsection 305-75(3) of the ITAA 1997 because you were not an Australian resident at all times during the period to which the lump sum relates.

Subsection 305-75(3) of the ITAA 1997 states:

If you become an Australian resident after the start of the period to which the lump sum relates (but before you received it) the amount of your applicable fund earnings is the amount (not less than zero) worked out as follows:

- work out the total of the following amounts:

- the amount in the fund that was vested in you just before the day (the start day) you first became an Australian resident during the period;

- the part of the payment that is attributable to contributions to the fund made by or in respect of you during the remainder of the period;

- the part of the payment (if any) that is attributable to amounts transferred into the fund from any other foreign superannuation fund during the remainder of the period;

- subtract that total amount from the amount in the fund that was vested in you when the lump sum was paid (before any deduction for foreign tax);

- multiply the resulting amount by the proportion of the total days during the period when you were an Australian resident;

- add the total of all previously exempt fund earnings (if any) covered by subsections (5) and (6).

Foreign currency conversion

It should be noted that subsection 960-50(1) of the ITAA 1997 states that an amount in a foreign currency is to be translated into Australian dollars (AUD). Item 11 of the table in subsection 960-50(6) of the ITAA 1997 provides that:

an amount of a receipt or a payment, where none of the above items apply the amount is to be translated to Australian currency at the exchange rate applicable at the time of the receipt or payment.

Regulation 960-50.01 of the Income Tax Assessment Regulations 1997 modifies the table in subsection 960-50(6) of the ITAA 1997 to include item 11A that applies to amounts, other than receipts and payments, and for which none of the other items apply.

Item 11A of the table provides that:

an amount (other than an amount of a receipt or a payment) to which none of the above items applies the amount is to be translated into Australian currency at an exchange rate that is reasonable having regard to the circumstances.

None of the other items in the table apply to either the lump sum payment you received or the value of the lump sum vested in you on your residency date.

Calculation

As no amount was contributed or transferred into your foreign fund after you became a resident of Australia of tax purposes, the calculated amount for the purpose of paragraph 305-75(3)(a) of the ITAA 1997 is the value of the vested amount at the date of residency.

Paragraph 305-75(3)(b) of the ITAA 1997 requires that the amount calculated in paragraph 305-75(3)(a) be subtracted from the transfer value on the day of payment.

This result is then multiplied by the proportion of days you were a resident to the total number of days from when you became a resident for Australian tax purposes until the date when the vested amount was paid.