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Edited version of your written advice
Authorisation Number: 1012862436175
Date of advice: 18 August 2015
Ruling
Subject: Undeducted Purchase Price (UPP) of your foreign pension.
Question
Are you entitled to a deductible amount in respect of the UPP of your foreign pension?
Answer
Yes, your annual deductible amount and part year deductible amount has been calculated in accordance with subsection 27H(2) of the Income Tax Assessment Act 1936 (ITAA 1936).
Reasons for decision
Where a person is entitled to both a pension and a lump sum payment, it must be determined whether part of the personal contributions made to the fund are 'undeducted contributions' relating to the lump sum payment, or form part of the 'purchase price' relating to the superannuation pension.
Taxation Ruling IT 2272 Income tax: Eligible termination payments and superannuation pensions - determination of undeducted contributions and undeducted purchase price states that where there is no apparent basis for allocating the contributions, the apportioning of the contributions made to obtain the pension is to be calculated on a pro-rata basis as follows:
Purchase of pension |
= |
B |
(A + B) |
where:
A = is the amount of the lump sum benefit received, and
B = is the net present value of the pension entitlement at the time when the lump sum benefit is received.
How the deductible amount is calculated
The part of your annual pension or annuity income which represents a return to you of your personal contributions is free from tax. The tax-free portion is called the deductible amount.
It is calculated by dividing the UPP of your pension by either the term of the pension (if fixed), or a life expectancy factor - that applies to you or your spouse if they have a greater life expectancy - according to life expectancy statistics.
The Australian life tables are published by the Australian Government Actuary, and the life expectancy is taken from when the pension first became payable.
The annual deductible amount is calculated using the following formula:
|
|
A= relevant share of the pension payable to you (if all the pension is payable to you then A = 1)
B= is the amount of the UPP of the pension,
C= is the residual capital value (if any), which in your case is 0
D= is the relevant number.
Part year calculation
A pro-rated amount applies for the first year.
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
Year ended 30 June 2018
The scheme commenced on:
30 April 2014
Relevant facts and circumstances
You are resident of Australia for income tax purposes
Your pension is paid by a retirement fund established and managed outside Australia
You have provided evidence which shows you paid personal contributions
You received a lump sum payment from your pension fund just prior to the commencement of the pension
Your pension commenced on 30 April 20XX and is payable for life
On your death 66% of the pension reverts to your spouse
Your pension is paid on a monthly basis.
Assumptions
No assumptions have been used in this ruling as it is given on the basis of the facts and circumstances stated above.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 27H
Income Tax Assessment Act 1936 Subsection 27H(2)
Income Tax Assessment Act 1936 Subsection 27H(4)
ATO view documents:
Taxation Ruling IT 2272