Edited version of your written advice

Authorisation Number: 1012975495580

Date of advice: 24 February 2016

Ruling

Subject: Lump sum transfer from a foreign superannuation fund - Double Tax Agreement

Question

Does Australia have taxing rights on a lump sum payment from a foreign superannuation scheme?

Answer

No

This ruling applies for the following period:

Income year ending 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

The taxpayer is a resident of Australia for taxation purposes.

The taxpayer has a superannuation account with a foreign superannuation scheme.

The taxpayer proposes to transfer the entirety of their superannuation entitlements from the foreign superannuation scheme to herself/himself personally as a lump sum.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 305-70

International Tax Agreements Act 1953 Section 4

International Tax Agreements Act 1953 Section 5

The Convention between Australia and the relevant country for the Avoidance of Double Taxation with Respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion Article 18

Reasons for decision

Summary

The assessability of the proposed lump sum payment is covered by The Convention between Australia and the relevant country for the Avoidance of Double Taxation with Respect to Taxes on Income and Fringe Benefits and the Prevention of Fiscal Evasion (the relevant Convention).

Detailed reasoning

Applicable Fund Earnings

According to domestic income tax laws, the applicable fund earnings in relation to a lump sum payment from a foreign superannuation fund, that is received more than six months after a person has become an Australian resident, will be assessable under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997).

The applicable fund earnings are subject to tax at the person's marginal rate. The remainder of the lump sum payment is not assessable income and is not exempt income.

The applicable fund earnings is the amount worked out under either subsection 305-75(2) or 305-75(3) of the ITAA 1997. The overall effect of section 305-75 of the ITAA 1997 is that a taxpayer will be assessed on the sum of:

• The total growth they earned on their benefits in the foreign superannuation fund during the period between the start day and the date when the lump sum is paid; and

• Any previously exempt fund earnings

Double Tax Agreement

However, to determine the taxpayer's liability to pay tax in Australia, it is not enough to simply consider the domestic income tax laws. Any applicable double tax agreements must also be considered.

Section 4 of the International Tax Agreements Act 1953 (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 relevant Convention is listed in section 5 of the Agreements Act.

The relevant Convention operates to avoid the double taxation of income received by residents of Australia and the foreign country.

Article 18 of the relevant Convention considers pension income.

Paragraph 2 is the relevant paragraph, which states:

2. Lump sums arising in a Contracting State and paid to a resident of the other Contracting State under a retirement benefit scheme, or in consequence of retirement, invalidity, disability or death, or by way of compensation for injuries, shall be taxable only in the first-mentioned State.

Under article 18 of the double tax agreement between Australia and the foreign country, the lump sum payment that the taxpayer will receive from the foreign country superannuation scheme will only be taxed in that country.

As the payment is not taxed in Australia, no Foreign Income Tax Offset is available.