Edited version of your written advice

Authorisation Number: 1013135331182

Date of advice: 20 February 2017

Ruling

Subject: Lump sum transfer into superannuation fund

Questions

1. Is any part of the lump sum payments transferred from a foreign superannuation fund into a complying Australian superannuation fund (the Australian Fund) assessable as applicable fund earnings under section 30-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

2. Can a person (the Client) choose to have the applicable fund earnings amounts (if any) in respect of the amount transferred into the Australian Fund included in the assessable income of the Australian Fund?

3. Is any part of the amount transferred from the foreign superannuation fund assessable to the Client?

4. Is the amount received by the Australian Fund a non-concessional contribution as defined in section 292-90 of the ITAA 1997?

5. Is the applicable fund earnings amount (if any) a non-concessional contribution as defined in section 292-90 of the ITAA 1997?

6. If the Client received income from their remaining pension policy from the foreign superannuation fund and then at a later date transfers the balance of this to the Australian Fund, how will the applicable fund earnings amount be calculated on the transfer to Australia?

Answers

1. Yes

2. No

3. Yes

4. The Commissioner cannot make a ruling on this issue.

5. The Commissioner cannot make a ruling on this issue.

6. The Commissioner cannot make a ruling on this issue.

This ruling applies for the following period

Income year ending 30 June 20YY

The scheme commences on

1 July 20XX

Relevant facts and circumstances

The Client migrated to Australia from the Country A and became a resident of Australia for tax purposes on a date more than 20 years ago (the Residency Date).

While living in Country A, the Client became a member of a foreign pension fund (Fund A).

Benefits in Fund A can be accessed only on retirement.

The amount in Fund A vested in the Client just before the Residency Date was provided.

In June 20XX, the Client's benefits in Fund A were transferred into another foreign fund (Fund B) and were split into three separate pension policies.

Benefits in Fund B can be accessed only on retirement.

A week after the transfer into Fund B, the amounts held in Policy 1 and Policy 2 were transferred in full into a complying Australian superannuation fund (the Australian Fund).

No contributions were made into Fund B by or in respect of the Client after they became a resident of Australia.

Immediately after the transfer into the Australian Fund, the Client had a remaining interest in Fund B held under Policy 3.

Fund A and Fund B are considered to be foreign superannuation funds for the purposes of Subdivision 305-B of the ITAA 1997.

Assumptions

Not applicable

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 292-90

Income Tax Assessment Act 1997 Subsection 292-90(2)

Income Tax Assessment Act 1997 Subsection 292-90(4)

Income Tax Assessment Act 1997 Section 295-155

Income Tax Assessment Act 1997 Subsection 295-200(2)

Income Tax Assessment Act 1997 Section 305-70.

Income Tax Assessment Act 1997 Subsection 305-70(2)

Income Tax Assessment Act 1997 Subsection 305-70(4)

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

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

Income Tax Assessment Act 1997 Section 305-80

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

Income Tax Assessment Act 1997 Subsection 305-80(2)

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 960-50(6).

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

Taxation Administration Act 1953 Section 357-55 of Schedule 1

Taxation Administration Act 1953 Section 359-5 of Schedule 1

Taxation Administration Act 1953 Subsection 359-35(1) of Schedule 1

Taxation Administration Act 1953 Subsection 359-35(2) of Schedule 1

Taxation Administration Act 1953 Subsection 359-35(3) of Schedule 1

Further issues for you to consider

None

Anti-avoidance rules

Not applicable.

Reasons for decision

Summary

The applicable fund earnings amount in respect of the lump sum superannuation benefits transferred by the Client from Fund B to the Australian Fund is equal to the amount transferred.

The Client cannot make an election under section 305-80 of the ITAA 1997 to have any part of the applicable fund earning amount included in the assessable income of the Australian Fund because immediately after the payment of the relevant amount, the Client had a remaining interest in Fund B.

The applicable fund earnings amount should be included in the Client's assessable income for the 20XX-YY income year and will be assessable at the Client's marginal rates of tax.

The Commissioner is unable to make a ruling on how section 292-90 of the ITAA 1997 (Questions 4 and 5 of your application) applies to the Client because it relates to the Client's liability to excess non-concessional contributions tax which is imposed under the Superannuation (Excess Non-concessional contributions Tax) Act 1997 and not under the ITAA 1997.

The Commissioner is unable to make a ruling on Question 6 of your application because the correctness of the ruling would depend on which assumptions are made about certain future events.

Detailed Reasoning

Question 1

Lump sum payments from foreign superannuation funds

Where a person receives a lump sum payment from a foreign superannuation fund more than six months after the person becomes a resident of Australia, subsection 305-70(2) of the ITAA 1997 applies to include in the assessable income so much of the lump sum (excluding any amount paid into another foreign superannuation fund) as equals:

a. their 'applicable fund earnings'; or

b. if they have made a choice under section 305-80 of the ITAA 1997 - their applicable fund earnings, less the amount covered by the choice.

In this case, the Client became a resident of Australia on the Residency date and their benefits were transferred from Fund B to the Australian Fund more than 20 years after the Residency Date. As the transfer occurred more than six months after residency, section 305-70 of the ITAA 1997 applies so that the amount of applicable fund earnings (if any) in respect of the transfer is included in the Client's assessable income for the 20XX-YY income year.

Applicable fund earnings

The 'applicable fund earnings' is the amount worked out under either subsection 305-75(2) or subsection 305-75(3) of the ITAA 1997. Subsection 305-75(2) applies where the person was an Australian resident at all times during the period to which the lump sum relates. Subsection 305-75(3) applies where the person becomes an Australian resident after the start of the period to which the lump sum relates.

In this case, the Client became an Australian resident for tax purposes after the start of the period to which the transfer from Fund A to Fund B relates, that is, after the date the Client became a member of Fund A. Therefore, subsection 305-75(3) of the ITAA 1997 applies to the transfer from the Fund A to Fund B.

The Client was an Australian resident at all times during the period to which the transfer from Fund B to the Australian Fund relates, therefore the applicable fund earnings amount in respect of the lump sums transferred is worked out under subsection 305-75(2) of the ITAA 1997.

Subsection 305-75(3) of the ITAA 1997 states:

If you become an Australian resident after the start of the period to which the lump sum relates, the amount of your applicable fund earnings is the amount (not less than zero) worked out as follows:

(a) work out the total of the following amounts:

(i) The amount in the fund that was vested in you just before the day (the start day) you first became an Australian resident during the period;

(ii) the part of the payment that is attributable to contributions to the fund made by or in respect of you during the remainder of the period;

(iii) the part of the payment (if any) that is attributable to amounts transferred into the fund from any other *foreign superannuation fund during the period;

(b) subtract that total amount from the amount in the fund that was vested in you when the lump sum was paid (before any deduction for *foreign tax);

(c) multiply the resulting amount by the proportion of the total days during the period when you were an Australian resident;

(d) add the total of all previously exempt fund earnings (if any) covered by subsections (5) and (6).

*To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

Subsection 305-75(2) of the ITAA 1997 states:

If you were an Australian resident at all times during the period to which the lump sum relates, the amount of your applicable fund earnings is the amount (not less than zero) worked out as follows:

(a) work out the total of the following amounts:

(i) the part of the lump sum that is attributable to contributions made by or in respect of you on or after the day when you became a member of the fund (the start day);

(ii) the part of the lump sum (if any) that is attributable to amounts transferred into the fund from any other *foreign superannuation fund during the period;

b) subtract that total amount from the amount in the fund that was vested in you when the lump sum was paid (before any deduction for *foreign income tax)

(c) add the total of all your previously exempt fund earnings (if any) covered by subsections (5) and (6).

*To find definitions of asterisked terms, see the Dictionary, starting at section 995-1.

Foreign currency conversion

Subsection 960-50(1) of the ITAA 1997 states that an amount in a foreign currency is to be translated into Australian dollars (A$). The applicable fund earnings is the result of a calculation from two other amounts and subsection 960-50(4) of the ITAA 1997 states that when applying section 960-50 of the ITAA 1997 to amounts that are elements in the calculation of another amount you need to:

● first, translate any amounts that are elements in the calculation of other amounts (except special accrual amounts); and

● then, calculate the other amounts.

In ATO Interpretative Decision ATO ID 2015/7 Income tax/Superannuation
Foreign currency translation rules in working out 'applicable fund earnings' under section 305-75 of the ITAA 1997, the Commissioner considered the foreign currency translation rules in relation to lump sum transfers from foreign superannuation funds. The Commissioner determined that it is reasonable to use the exchange rate applicable at the time of receipt of the lump sum to work out the Australian dollar equivalent of the amount in a foreign superannuation fund vested in a taxpayer on a certain date.

Calculation of the applicable fund earnings amount - transfer from Fund A to Fund B

The calculation of the applicable fund earnings amount in respect of the amounts transferred from Fund B to the Australian Fund is shown in the tables below. As discussed above, any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt.

In accordance with subsection305-70(4) of the ITAA 1997, the amount transferred from Fund A to Fund B is not assessable income and is not exempt income of the Client. However, the applicable fund earnings amount is counted as 'previously exempt fund earnings' for the purposes of calculating the applicable fund earnings amount in respect of the transfer from Fund B to the Australian Fund.

Calculation of the applicable fund earnings amount - transfer from Fund B to the Australian Fund

Item	Description	Amount (*)	Amount (A$)
A	Amount in Fund B vested in the Client when the lump sum was paid	*XXX,XXX	$XXX,XXX
B	Part of the transfer attributable to contributions into Fund B on or after the day the Client became a member of the fund	*0.00	$0.00
C	Part of the transfer attributable to amounts transferred from other foreign funds into Fund B on or after the day the Client became a member of the fund	*XXX,XXX	$XXX,XXX
D	B + C (paragraph 305-75(2)(a) of the ITAA 1997)		$XXX,XXX
E	A - D (paragraph 305-75(2)(b) of the ITAA 1997)		$XXX,XXX
F	Previously exempt fund earnings (if any)		$XXX,XXX
G	E + F = applicable fund earnings amount (paragraph 305-75(2)(c) of the ITAA 1997)		$XXX,XXX

As in this case the 'applicable fund earnings' amount in respect of the amount transferred from Fund B to the Australian Fund, exceeds the amount transferred, the applicable fund earnings amount is equal to the amount transferred.

Question 2

Election under section 305-80 of the ITAA 1997

A person may choose to have a superannuation lump sum from a foreign superannuation fund transferred to a complying superannuation fund rather than being paid directly to the person. In such a case, the person may elect under section 305-80 of the ITAA 1997 for all or part of their applicable fund earnings amount to be included in the assessable income of the complying superannuation fund.

However, the choice can only be made if the conditions in subsection 305-80(1) of the ITAA 1997 are satisfied, that is if:

● the person is taken to have received the lump sum under section 307-15 of the ITAA 1997;

● whole of the lump sum is paid directly from the foreign superannuation fund into a complying superannuation fund; and

● the person no longer has an interest in the foreign superannuation fund immediately after the lump sum is paid.

A person is taken to have received a payment under section 307-15 of the ITAA 1997 if it is made:

● for the person's benefit; or

● to another person or to an entity at the person's direction or request.

In this case, the Client is taken to have received the lump sum under section 307-15 of the ITAA 1997 because it was transferred to the Australian Fund at the Client's request. However, although the whole of the lump sum was paid directly to the Australian Fund, immediately after the payment, the Client had a remaining interest in Fund B.

Therefore, the Client cannot make an election under section 305-80 of the ITAA 1997 to have any part of the applicable fund earning included in the assessable income of the Australian Fund.

Question 3

Tax treatment of superannuation benefits from foreign superannuation funds

In accordance with subsection 305-70(2) of the ITAA 1997, a person who receives a superannuation lump sum from a foreign superannuation fund must include in their assessable income, so much of the lump sum as is equal to the applicable fund earnings worked out under section 305-75 of the ITAA 1997.

The remainder of the lump sum is not assessable income and is not exempt income (subsection 305-70(3) of the ITAA 1997).

Consequently, the applicable fund earnings amount is to be included in the Client's assessable income for the 20XX-YY income year.

Questions 4 and 5

Private rulings

Section 359-5 of Schedule 1 to the Taxation Administration Act 1953 (TAA) provides that the Commissioner of Taxation (the Commissioner) may, on application, make a written ruling (a private ruling) on the way in which a relevant provision applies, or would apply, to an entity in relation to a specified scheme.

For the purposes of section 359-5 of Schedule 1 to the TAA, the relevant provisions are defined in section 357-55 of Schedule 1 to the TAA and include certain provisions of Acts and Regulations of which the Commissioner has general administration. However, none of the paragraphs in section 357-55 allow a private ruling to be given in relation to excess non-concessional contributions or excess non-concessional contributions tax.

Paragraph 357-55(a) of Schedule 1 to the TAA does allow a ruling to be given on 'tax' however, in accordance with subsection 995-1(1) of the ITAA 1997, 'tax' means:

a) income tax imposed by the Income Tax Act 1986 as assessed under this Act; or

b) income tax imposed as such by any other Act, as assessed under this Act.

Excess non-concessional contributions tax is assessed under the Superannuation (Excess Non-concessional Contributions Tax) Act 2007 and not the ITAA 1997. As such, it is not a 'tax' for the purposes of section 357-55 of Schedule 1 to the TAA. Therefore, the Commissioner cannot make a ruling on issues relating to excess non-concessional contributions or excess non-concessional contributions tax.

Question 6

Subsection 359-35(1) of the TAA requires the Commissioner to comply with an application for a private ruling and make the ruling. However, in the interests of allowing the Commissioner to focus efforts on increasing certainty for entities in the most genuine and worthy cases, the Commissioner may decline to rule in accordance with subsections 359-35(2) and (3) of the TAA.

Situations where the Commissioner may decline to rule are discussed in paragraphs 39 and 40 of Taxation Ruling TR 2006/11 Private Rulings and, relevantly, include situations where the Commissioner considers that the correctness of the private ruling would depend on assumptions about a future event or other matter.

Therefore, we will not be making a private ruling in respect of Question 6 in your application because the correctness of the ruling would depend on making a number of assumptions about future events and other matters including the following:

● the date(s) of any future transfer(s);

● the amount of the transfer(s);

● the amount in the foreign superannuation fund vested in the Client on the date of transfer(s); and

● the applicable foreign exchange rates on the date of transfer(s).

A decision to decline to make a ruling is reviewable under the Administrative Decisions (Judicial Review) Act 1977. For further information about your review rights, please read the explanatory notes attached to this letter.