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Edited version of your written advice
Authorisation Number: 1051191338825
Date of advice: 15 February 2017
Ruling
Subject: Lump sum payment from a foreign superannuation fund
Question
Will section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the lump sum withdrawn from Foreign Country X Self Invested Personal Pension (SIPP) fund?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 2017
The scheme commences on:
1 July 2016
Relevant facts and circumstances
You became an Australian resident for tax purposes.
You are a member of a Self Invested Personal Pension (SIPP) fund.
You intend to transfer the benefit from the SIPP fund into an Australian complying superannuation fund.
The SIPP fund was established in Foreign Country X and its central management and control are in Foreign Country X.
Relevantly, the Trust Deed of the SIPP fund states:
16 Benefits for member
16.1 Any uncrystallised fund of a member may be:
16.1.1 applied to pay a pension commencement lump sum of such amount as the Member may request; and
16.1.2 designed as available for the payment of Drawdown…
On such date as the member may select, being not earlier than the earliest date on which:
16.1.3 the member reaches his normal minimum pension age (or any protected pension age); or
16.1.4 the ill-health condition is met
17 Benefits following death of member
17.1.2 payment of one or more lump sum death benefits…
Relevant legislative provisions
Income Tax Assessment Act 1997 Subsection 295-95(2)
Income Tax Assessment Act 1997 Subdivision 305-B
Income Tax Assessment Act 1997 section 305-60
Income Tax Assessment Act 1997 section 305-70
Income Tax Assessment Act 1997 Section 995-1
Superannuation Industry (Supervision) Act 1993 Section 10
Reasons for decision
Tax treatment of lump sums received from certain foreign superannuation funds is set out in Subdivision 305-B of the ITAA 1997.
Section 305-55 of the ITAA 1997 restricts the application of Subdivision 305-B of the ITAA 1997 to lump sums received from certain foreign superannuation funds, or schemes that pay benefits in the nature of superannuation upon retirement or death.
In accordance with sections 305-60 of the ITAA 1997, where a lump sum paid from a foreign superannuation fund is received within six months after Australian residency and relates only to a period of non-residency; or to a period starting after the residency and ending before the receipt of payment, the lump sum is not assessable income and is not exempt income.
If a person receives a lump sum payment from a foreign superannuation fund more than six months after the person becomes a resident of Australia, section 305-70 of the ITAA 1997 applies to include the applicable fund earnings (if any) in the person's assessable income.
In your case, we have to determine whether the Foreign Country X SIPP fund is a foreign superannuation fund for the purposes of Subdivision 305-B of the ITAA 1997.
Subdivision 305-B of the ITAA 1997 sets out the tax treatment of superannuation benefits received by members of non-complying plans, including foreign superannuation funds.
A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as follows:
(a) a *superannuation fund is a foreign superannuation fund at a time if the fund is not an *Australian superannuation fund at that time; and …
Relevantly, subsection 295-95(2) of the ITAA 1997 defines an Australian superannuation fund as follows:
A superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if:
(a) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and
(b) at that time, the central management and control of the fund is ordinarily in Australia; and …
*To find definitions of asterisked terms, see the Dictionary, starting a section 995-1.
Based on the above, a 'superannuation fund' that is established outside of Australia and has its central management and control outside of Australia would not qualify as an Australian superannuation fund and would, therefore be a foreign superannuation fund in accordance with subsection 995-1(1) of the ITAA 1997.
Meaning of 'superannuation fund'
Subsection 995-1(1) of the ITAA 1997 defines a superannuation fund as having the same meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA), that is:
(a) a fund that:
(i) is an indefinitely continuing fund; and
(ii) is a provident, benefit, superannuation or retirement fund; or
(b) a public sector superannuation scheme;
The High Court examined both the terms superannuation fund and fund in Scott v. Commissioner of Taxation of the Commonwealth (No. 2) (1966) 10 AITR 290; (1966) 40 ALJR 265; (1966) 14 ATD 333 (Scott). In that case, Justice Windeyer stated:
…I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion “fund”, I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalised. I do not put this forward as a definition, but rather as a general description.
The issue of what constitutes a provident, benefit, superannuation or retirement fund was discussed by the Full Bench of the High Court in Mahony v. Federal Commissioner of Taxation (1967) 41 ALJR 232; (1967) 14 ATD 519 (Mahony).
In that case, Justice Kitto held that a fund had to exclusively be a 'provident, benefit or superannuation fund' and that 'connoted a purpose narrower than the purpose of conferring benefits in a completely general sense…'. This narrower purpose meant that the benefits had to be 'characterised by some specific future purpose' such as the example given by Justice Kitto of a funeral benefit.
Furthermore, Justice Kitto's judgement indicated that a fund does not satisfy any of the three provisions, that is, 'provident, benefit or superannuation fund', if there exist provisions for the payment of benefits 'for any other reason whatsoever'. In other words, though a fund may contain provisions for retirement purposes, it could not be accepted as a superannuation fund if it contained provisions that benefits could be paid in circumstances other than those relating to retirement.
In accordance with section 62 of the SISA (Sole purpose test), a regulated superannuation fund must be maintained solely for the provision of benefits specified in subsection 62(1) of the SISA. The 'core purposes' specified in that subsection relate to providing retirement or death benefits for, or in relation to, fund members; and the 'ancillary purposes' relate to the provision of benefits on the cessation of a member's employment and other death benefits and other approved benefits.
Notwithstanding the SISA applies only to 'regulated superannuation funds' (as defined in section 19 of the SISA), and foreign superannuation funds do not qualify as regulated superannuation funds as they are established and operate outside Australia, the Commissioner views the SISA (and the Superannuation Industry (Supervision) Regulations 1994) as providing guidance as to what 'benefit' or 'specific future purpose' a superannuation fund should provide.
In view of the legislation and the decisions made in Scott and Mahony, the Commissioner's view is that for a fund to be classified as a superannuation fund, it must exclusively provide a narrow range of benefits that are characterised by some specific future purpose. That is, the payment of superannuation benefits upon retirement, invalidity or death of the individual or as specified under the SISA.
In your case, the information provided indicates that you can access benefits in the SIPP fund only upon reaching minimum pension age, in ill-health or upon death. As such, the SIPP fund is considered to be a superannuation fund as defined in section 10 of the SISA.
In addition, it is clear the SIPP fund is established outside of Australia and its central management and control is outside of Australia. Therefore, on the basis of the information provided, it is considered that the SIPP fund is a foreign superannuation fund for the purposes of Subdivision 305-B of the ITAA 1997.
Conclusion
You became an Australian resident for tax purposes and you intend to transfer the lump sum benefits from the SIPP fund into an Australian complying superannuation fund. As you will receive the lump sum more than six months after you became resident, section 305-70 of the ITAA 1997 will apply to the lump sum received.