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Ruling

Subject: Foreign Lump Sum Payment

Questions and answers:

Is the foreign lump sum payment you received assessable income?

No.

Are you entitled to a deductible amount in respect of the undeducted purchase price (UPP) of the payment received?

No.

This ruling applies for the following period:

Year ended 30 June 2012.

The scheme commenced on:

1 July 2012.

Relevant facts:

You emigrated from overseas in early 2012.

You then received a lump sum payment from your foreign super fund into your bank account within 6 months of being an Australian resident.

You are below the pension age.

You are entitled to the gross amount of which an amount of tax was withheld overseas.

You and your employer had contributed to the fund.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Division 305

Income Tax Assessment Act 1997 Subdivision 305-B

Income Tax Assessment Act 1997 Section 305-60

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

Income Tax Assessment Act 1936 Section 27H

Income Tax Assessment Act 1997 Section 770-70

Income Tax Assessment Act 1997 Section 770-75

Reasons for decision

Division 305 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the tax treatment of superannuation benefits received by individuals from non-complying superannuation plans. Subdivision 305-B of the ITAA 1997 deals specifically with superannuation lump sums from foreign superannuation funds.

Foreign Superannuation Fund

Before determining whether an amount is assessable under section 305-60 of the ITAA 1997, it is necessary to ascertain whether the payment is being made from a foreign superannuation fund. If the entity making the payment is not a foreign superannuation fund then section 305-60 of the ITAA 1997 will not apply to the payment received.

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

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

(b) 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:

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

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

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

(i) the total market value of the fund's assets attributable to superannuation interests held by active members; or

(ii) 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.

In your case, the lump sum benefit was paid from an overseas fund. It is evident that the Fund, which is established overseas, is not an Australian superannuation fund as defined in subsection 295-95(2) of the ITAA 1997. Based on the information provided, the Fund is a foreign superannuation fund as defined in subsection 995-1(1) of the ITAA 1997.

Superannuation Lump Sum

As per section 305-60 of the ITAA 1997, a superannuation lump sum you receive from a foreign superannuation fund is not assessable income and is not exempt income if:

(a) you receive it within 6 months after you become an Australian resident; and

(b) it relates only to a period:

(i) when you were not an Australian resident; or

(ii) starting after you became an Australian resident and ending before you receive the payment; and

(c) it does not exceed the amount in the fund that was vested in you when you received the payment.

In your case, you arrived in Australia in 2012 and received a lump sum payment from your foreign super fund into your bank account within 6 months of becoming an Australian resident. As this withdrawal was made after you became an Australian resident and within 6 months of doing so, the lump sum superannuation payment is tax-free, as the contributions accrued from employment exercised outside Australia as per Section 305-60 of the ITAA 1997.  

Undeducted Purchase Price

Section 27H of the ITAA 1936 operates to include in assessable income the amount of any pension derived by a taxpayer during a year of income reduced by the annual deductible amount.

The undeducted purchase price (UPP) is the amount you personally contributed towards the purchase price of your foreign pension or annuity. Each year, a portion of the UPP can be used to reduce the pension or annuity income in your tax return. This portion is called the deductible amount.

As no amount of your lump sum is assessable income to you in Australia, the tax concessions available under the undeducted purchase price will not apply.