Edited version of your private ruling

Authorisation Number: 1012550644518

Ruling

Subject: Assessability of superannuation payments

Questions and answers

1. Is any part of the superannuation lump sum to be made from the Commonwealth Superannuation Scheme to a foreign resident taxable in Australia?

Yes.

2. Are your pension payments made by the Commonwealth Superannuation Scheme assessable in Australia?

No.

This ruling applies for the following periods:

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commenced on:

1 July 2013

Relevant facts and circumstances

You resided in Australia for a number of years.

You went overseas to live permanently in Country Y.

Whilst residing in Australia, you became a member of a superannuation scheme.

You applied for your deferred superannuation which included a combination of indexed pension, additional non indexed pension and a superannuation lump sum benefit which represents productivity contributions.

You are 60 years old or over.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Subsection 52-10(1A)

Income Tax Assessment Act 1997 Section 301-10.

Income Tax Assessment Act 1997 Section 301-95.

Superannuation Industry (Supervision) Regulations 1994 Schedule 1.

International Tax Agreements Act 1953 Section 4

International Tax Agreements Act 1953 Schedule 1 Article 17

Reasons for decision

Taxation of a lump sum superannuation benefit

A superannuation benefit received from a superannuation fund, subject to meeting the preservation rules and conditions of release under Schedule 1 to the Superannuation Industry (Supervision) Regulations 1994, will have two components: a tax free component and a taxable component. These two components attract different tax treatments.

Tax free component

Section 301-10 of the Income Tax Assessment Act 1997 (ITAA 1997) operates to ensure that the tax free component is not assessable income and is not exempt income. The section states:

If you are 60 years or over when you receive a superannuation benefit, the benefit is not assessable income and is not exempt income.

Therefore, the tax free component of the superannuation benefit (superannuation lump sum or superannuation income stream) is not included in your assessable (or taxable) income. Nor is it treated as exempt income.

Taxable component

The taxable component of a superannuation benefit can, depending on the nature of the fund from which it is paid, be comprised of one or both of the following:

Ÿ taxable component - element taxed in the fund;

Ÿ taxable component - element untaxed in the fund.

The tax treatment of a taxable component will depend on:

Ÿ your age at the time you received the superannuation benefit; and

Ÿ whether the taxable component is an element taxed in the fund or an element untaxed in the fund.

Taxable component for a person aged 60 years or above

The taxable component of a superannuation benefit is the amount remaining after reducing the benefit by the tax free component.

Ordinarily, the taxable component will be comprised entirely of an element taxed in the fund (taxed element). The taxable component taxed element for a person aged 60 years or above at the time of receipt is non-assessable income and non-exempt income. Therefore the amount of the taxable component - taxed element is not included in your assessable income.

However, in the case of superannuation benefits paid from certain superannuation schemes, the taxable component may contain both a taxed element and an untaxed element.

You were a member of the superannuation scheme which is known as a hybrid scheme, that is, it is comprised of both a defined benefit scheme and an accumulation fund.

The defined benefit scheme is funded and paid out of the consolidated revenue. As such, any taxable benefits payable under the defined benefit scheme are ordinarily comprised of an untaxed element only.

In the case of the accumulation fund, it is established to accept member contributions and, from a date onwards, productivity contributions. The taxable component of benefits payable from this source are comprised of a taxed element.

However, in the case of productivity contributions prior to a date, these were paid into the consolidated revenue. As such, the amount of the productivity benefit attributable to productivity contributions made prior to a date will be an untaxed element.

As you were a member of the scheme prior to a date the productivity benefit you will receive will include both a taxable component - taxed element and a taxable component - untaxed element.

Taxable component -untaxed element for a person aged 60 years or above

The amount of the taxable component - untaxed element has not been subject to tax in the fund therefore this amount is included in your assessable income (section 301-95 of the ITAA 1997) and subject to tax as follows:

Ÿ the amount up to the untaxed plan cap amount ($1,315,000 for the 2013-14 income year) is subject to 15% tax; and

Ÿ the amount (if any) above the untaxed plan cap amount is subject to tax at the top marginal rate (45% for the 2013-14 income year).

As you are a non resident of Australia the Medicare levy will not apply.

Taxation of pension income

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are a foreign resident, your assessable income includes only income derived from an Australian source. 

Pension income is ordinary income assessable under subsection 6-5(2) of the ITAA 1997.

In determining your liability to pay tax in Australia it is necessary to consider not only the domestic income tax laws but also any applicable double tax agreements.

Section 4 of the International Tax Agreements Act 1953 (the Agreements Act ) incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three Acts are read as one. The Agreements Act overrides both the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except in some limited situations).

Section 5 of the Agreements Act states that, subject to the provisions of the Agreements Act, any provision in an Agreement listed in section 5 has the force of law. The Country Y Agreement (the Agreement) is listed in section 5 of the Agreements Act.

The Agreement operates to avoid the double taxation of income received by residents of Australia and Country Y.

An article of the Agreement deals with pensions and annuities. A paragraph in the article provides that pensions, including government pensions, paid to a resident of Country Y shall be taxable only in Country Y.

As you are a non-resident of Australia for taxation purposes the pension payment you receive is not assessable income in Australia under the Agreement.