Edited version of private ruling

Authorisation Number: 1011900812041

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Ruling

Subject: superannuation death benefit - non-resident beneficiary

Question

Is any part of the superannuation lump sum death benefit payment made to you included as assessable income?

Advice/Answer

Yes.

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You have received a payment from a deceased estate.

A PAYG Payment Summary - superannuation lump sum from a superannuation fund shows that the payment was made to you in the 2010-11 income year and comprised of a taxed element, tax free component and tax was withheld.

You are a non-dependant of the deceased.

You are a foreign resident.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 6-5(3)

Income Tax Assessment Act 1997 Subsection 6-10(5)

Income Tax Assessment Act 1997 Subdivision 302-C

Income Tax Assessment Act 1997 Section 302-140

Income Tax Assessment Act 1997 Subsection 302-145(2)

International Tax Agreements Act 1953

Reasons for decision

Summary of decision

A foreign resident is assessed on income derived from all sources in Australia.

The Double Tax Agreement (DTA) between Australia and the foreign country does not contain an article that precludes Australia from taxing lump sum payments from superannuation funds.

Superannuation lump sums paid on the death of an individual to a non-dependant are taxed in the following manner:

· the tax-free component is not assessable.

· a tax offset will ensure that the rate of tax payable on the taxed element of the taxable component of the superannuation death benefit will not exceed 15%.

Please note where a person does not have a tax file number (TFN) tax is withheld tax at the highest marginal tax rate (45% for the 2011-12 income year). Foreign residents are not required to pay the Medicare levy.

In this case, you may be entitled to a refund for some or all of the tax withheld. To make a claim you will need to complete and lodge a tax return for the relevant income year. In order to lodge a tax return you will need to apply for a TFN first. Please see 'Guide to foreign income tax offset rules 2010-11' for further information. This can be accessed on our website at www.ato.gov.au by clicking Individuals > Find a form or publication > All publications > search and then entering 72923 in the Nat Number field.

Detailed reasoning

Assessable Income

Subsection 6-5(3) of the Income Tax Assessment Act 1997 (ITAA 1997) states:

If you are a foreign resident, your assessable income includes:

(a) the ordinary income you derived directly or indirectly from all Australian sources during the income year; and

(b) other ordinary income that a provision includes in your assessable income for the income year on some other basis other than having an Australian source.

Subsection 6-10(5) of the ITAA 1997 states:

If you are a foreign resident, your assessable income includes:

(a) your statutory income from all Australian sources; and

(b) other statutory income that a provision includes in your assessable income on some other basis than having an Australian source.

This means that a foreign resident is assessed on income derived from all sources in Australia. Under the ITAA 1997, a foreign resident means a person who is not a resident of Australia for the purposes of Income Tax Assessment Act 1936 (ITAA 1936), that is, the person is a non-resident of Australia.

In this case you have advised that you are foreign resident. Therefore, you are considered to be a non-resident of Australia.

Double Taxation Agreements

The tax laws of different countries may mean that the income of an individual can be taxed in the country where that individual resides as well as the country in which the individual derived that income. To reduce this possibility, Australia has entered into a number of agreements with other countries to prevent this double taxation. These agreements are given legal force by the International Tax Agreements Act 1953 (the Agreements Act).

Each agreement contains rules to establish which country has taxing rights over a particular type and source of income specified in the agreement.

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

Section 5 of the Agreements Act lists the current double tax agreements Australia has with other countries. Included in that list is the tax treaty between Australia and the foreign country.

There is no article contained in the Double Tax Agreement (DTA) between Australia and the foreign country that specifically refers to lump sum payments from superannuation funds.

Consequently, as there is nothing contained in the DTA that precludes Australia from taxing lump sum payments from superannuation funds, then it may be taxed subject to Australia's taxation laws.

Subdivision 302-C of the ITAA 1997 applies to superannuation lump sums paid on the death of an individual to a non-dependant and provides:

· the tax-free component is not assessable (section 302-140 of the ITAA 1997)

· a tax offset will ensure that the rate of tax payable on the taxed element of the taxable component of the superannuation death benefit will not exceed 15% (subsection 302-145(2) of the ITAA 1997).

Please note that where a person does not have a tax file number (TFN) tax is withheld tax at the highest marginal tax rate (45% for the 2011-12 income year). Foreign residents are not required to pay the Medicare levy.

In this case, you may be entitled to a refund for some or all of the tax withheld. To make a claim you will need to complete and lodge a tax return for the relevant income year. In order to lodge a tax return you will need to apply for a TFN first. Please see 'Guide to foreign income tax offset rules 2010-11' for further information. This can be accessed on our website at www.ato.gov.au by clicking Individuals > Find a form or publication > All publications > search and then entering 72923 in the Nat Number field.