Edited version of your written advice

Authorisation Number: 1012978740060

Date of advice: 2 March 2016

Ruling

Subject: Foreign lump sum payments

Question

Will a lump sum payment from a foreign plan (the Plan) to the taxpayer be considered a payment to which subsection 305-55(2) of the Income Tax Assessment Act 1997 (ITAA 1997) applies?

Answer

Yes.

This ruling applies for the following period:

Income year ending 30 June 2016

The scheme commences on:

1 July 2015.

Relevant facts and circumstances

Your client (the Taxpayer) is a dual citizen of Australian and another county.

The Taxpayer has been employed in Australia and overseas within a group of companies (the group).

Whilst overseas the Taxpayer joined an overseas Plan.

The Plan, was set up to provide senior employees who had provided employment service to companies within the group with a pension benefit comparable to the pension benefit available to those of other senior employees within the group. The Plan is administered in an overseas country (the overseas country).

The overseas administration provides annual member statements which are prepared by overseas actuaries for distribution to the individual members as are any termination or retirement calculations and related option packages. Records and documentation are also maintained in the overseas country.

No contributions are made to the Plan by its members. However, to be eligible to join the Plan members must participate in and make contributions to the local company plan for which they are eligible.

The Taxpayer made a contribution to the local Australian Superannuation Plan (whilst employed in Australia) and the overseas Plan (whilst employed overseas).

The Plan is a defined benefit plan, where benefits are calculated by reference to the best average earnings in a consecutive monthly period during the last X years of employment and also with reference to credited years of service up to a maximum of XX years. The total payment is reduced by offsets which are pension benefits the member is entitled to receive from the local plans. The Taxpayer will not receive a duplicate benefit under the Plan.

The Plan is unfunded and unsecured. This means the group does not set aside money separately to fund a member's benefit as it accrues. The liability for the benefit from the Plan is accounted for by the member's present employer company from within the group.

Upon cessation of employment or retirement the member is eligible to receive payment from the Plan. The Plan allows for the member to elect, to take, the pension payable under the Plan as a lump sum commuted value (actuarial equivalent of the pension payable under the plan). The Taxpayer has made this election.

A copy of the local plan rules and the Plan Rules was provided.

There were no rollover benefits into the Plan.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 Subdivision 305-55(2)

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

Reasons for decision

Summary

On the basis of the facts provided in this case the lump sum payment to the Taxpayer from the Plan will be considered a payment to which subsection 305-55(2) of the ITAA 1997 applies.

Detailed reasoning

Lump sum payments transferred from foreign superannuation funds

Section 305-55 in Subdivision 305-5(B) of the ITAA 1997 sets out restrictions to lump sums received from certain foreign superannuation funds.

Subsection 305-55(2) of the ITAA 1997 also states:

This Subdivision also applies if you receive a payment, other than a pension payment, from a scheme for the payment of benefits in the nature of superannuation payments upon retirement or death:

is not, and never has been, an Australian superannuation fund or a foreign superannuation fund; and

was not established in Australia; and

is not centrally managed or controlled in Australia.

The details provided confirm that the payment is to be a lump sum payment from the Plan and not a pension payment.

Australian superannuation fund or a foreign superannuation fund

In order for the lump sum payment from the overseas Plan to be considered a payment under subsection 305-55(2) of the ITAA 1997 it cannot be a payment from a foreign superannuation fund as defined in subsection 995-1(1) or from an Australian superannuation fund as defined in subsection 295-95(2) of the ITAA 1997.

It is accepted on the facts provided that the Plan which will make the lump sum payment to the Taxpayer was established and is managed overseas, It does not satisfy the active member test in paragraph 295-95(2)(c). Therefore the Plan is not an Australian superannuation fund as defined in subsection 295-95 (2) of the ITAA 1997.

You have advised that the Plan is unfunded and unsecured and the company does not set aside money into a separate entity to fund the Taxpayer's Plan benefits. You have further advised that to be eligible to join the Plan the taxpayer must participate in the local company pension plan for which they are eligible and the total payment from the Plan is reduced by offsets which are pension benefits the Taxpayer is entitled to receive from other local Pension Plans.

Therefore based on the information provided, the Commissioner accepts that the Plan is not a foreign superannuation fund under subsection 995-1 (1) of the ITAA 1997 but part of a scheme to provide the Taxpayer with retirement benefits.

The Plan provides additional or supplemental benefits to the overall retirement benefits provided to the Taxpayer under a scheme to provide such benefits and as such forms part of the Taxpayer's retirement benefits. Therefore, the Commissioner also accepts that the lump sum payment is a payment from a scheme for the payment of benefits in the nature of superannuation upon retirement or death.

The Plan is a scheme established outside of Australia and has its central management and control outside of Australia.

Accordingly, the Commissioner considers that the lump sum payment from the Plan will be considered a payment to which subsection 305-55(2) of the ITAA 1997 applies.