Edited version of private advice

Authorisation Number: 1012632322675

Ruling

Subject: Lump sum payment from foreign super fund

Question 1

Is your client able to choose under section 305-80 of the ITAA 1997 to include all or part of the applicable fund earnings in the assessable income of the Australian Superannuation fund?

Answer

No.

This ruling applies for the following periods:

The year ended 30 June 2014.

The scheme commences on:

1 July 2013.

Relevant facts and circumstances

Your client migrated to Australia prior to the 2013 income year.

Your client holds an interest in a pension scheme (Pension Scheme 1) in an overseas country.

During the 2013 income year, the trustee of Pension Scheme 1 advised your client of the transfer value on that date, guaranteed for a period of time.

Your client intends to transfer the entire transfer value from Pension Scheme 1 to another overseas pension scheme (Pension Scheme 2).

Pension Scheme 2 is divided into different parts and funds, in particular different parts for protected and non-protected rights.

Your client intends on executing a supplement deed with the trustee, to set up a sub-trust for their Pension Scheme 2 and appoint themself as a co-trustee.

The supplement deed of Pension Scheme 2 states:

The Provider hereby admits the Member to membership of the Scheme with effect from the date of execution of this Supplement Deed and the Member agrees to comply with and observe the provisions of the Trust Deed and Rules.

The supplement deed of Pension Scheme 2 also states:

The Trustee and the Member declare that the Member's Total Fund shall be held on IRREVOCABLE TRUST and subject to the provisions of the Trust Deed, the Rules and this Supplement Deed.

Your client intends on setting up two separately identifiable, accounted for and different sub-funds.

The first sub-fund is to leave monies for the longer term. The second sub-fund will be set up with a cash only strategy.

Your client intends on clearing out the entire balance in the second sub-fund of Pension Scheme 2 fairly soon after it is established, with the lump sum transferred a complying Australian Superannuation fund.

Assumptions

You requested that the private ruling only address the issue of whether your client's intended transfer to a complying Australian Superannuation fund will satisfy the conditions under section 305-80 of the ITAA 1997 to include all or part of the applicable fund earnings in the assessable income of the Australian Superannuation fund.

For the purposes of this private ruling only, it is assumed that an amount of applicable fund earnings will be assessable under either subsection 305-75(2) or subsection 305-75(3) of the ITAA 1997.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Section 305-70.

Income Tax Assessment Act 1997 Section 305-75.

Income Tax Assessment Act 1997 Subsection 305-75(2).

Income Tax Assessment Act 1997 Subsection 305-75(3).

Income Tax Assessment Act 1997 Paragraph 305-75(3)(a).

Income Tax Assessment Act 1997 Paragraph 305-75(3)(b).

Income Tax Assessment Act 1997 Paragraph 305-75(3)(c).

Income Tax Assessment Act 1997 Paragraph 305-75(3)(d).

Income Tax Assessment Act 1997 Subsection 305-75(5).

Income Tax Assessment Act 1997 Subsection 305-75(6).

Income Tax Assessment Act 1997 Subsection 305-80(1)

Income Tax Assessment Act 1997 Section 960-50.

Income Tax Assessment Act 1997 Subsection 960-50(1).

Income Tax Assessment Act 1997 Subsection 960-50(4).

Income Tax Assessment Act 1997 Subsection 995-1(1).

Superannuation Industry (Supervision) Act 1993 Section 10.

Superannuation Industry (Supervision) Act 1993 Section 19.

Superannuation Industry (Supervision) Act 1993 Section 62.

Reasons for decision

Summary

As your client will still have an interest in Pension Scheme 2, your client is not eligible to make an election to have part of the lump sum payment treated as assessable income of your client's Australian superannuation fund.

Detailed reasoning

Election

A taxpayer transferring their overseas superannuation directly to an Australian complying superannuation fund more than six months after becoming a resident, can elect under subsection 305-80(2) of the ITAA 1997 to have all or part of the payment treated as assessable income of the Australian superannuation fund, provided the taxpayer no longer has an interest in the foreign fund ((subsection 305-80(1)).

In this case, your client has established separate sub-funds under Pension Scheme 2 and is intending to clear out an entire sub-fund when transferring payment to an Australian Superannuation Fund. The issue at present is whether each sub-fund is a separate superannuation fund for the purpose of subsection 305-80(2) of the ITAA 1997.

The supplement deed of Pension Scheme 2 states:

The Provider hereby admits the Member to membership of the Scheme with effect from the date of execution of this Supplement Deed and the Member agrees to comply with and observe the provisions of the Trust Deed and Rules.

The supplement deed of Pension Scheme 2 also states:

The Trustee and the Member declare that the Member's Total Fund shall be held on IRREVOCABLE TRUST and subject to the provisions of the Trust Deed, the Rules and this Supplement Deed.

The supplement deed is indicative of their only being one "Scheme" under the deed. Furthermore, the supplement deed makes reference to the "Total Fund".

Accordingly, as there is only one Scheme present and whilst several sub-funds may be created, when your client clears out his interests in one of the sub-funds contained within Pension Scheme 2 they will still have an overall interest in Pension Scheme 2. Therefore the election is not available to your client when they transfer the total amount out of the one of the sub-funds.