Edited version of your written advice

Authorisation Number: 1051290441070

Date of advice: 15 November 2017

Ruling

Subject: Lump sum transfer from a foreign superannuation fund

Questions

1. For the purposes of section 305-75 of the Income Tax Assessment Act 1997 (ITAA 1997), is any amount of benefits transferred from a foreign superannuation fund (Fund A) to a self-invested personal pension (SIPP A) ‘applicable fund earnings’?

2. Can the trustees of an Australian superannuation fund (the Australian Fund) accept a single contribution of $300,000 plus all the previously exempt/applicable fund earnings from SIPP A?

3. If tax is paid on the applicable fund earnings on transfer from SIPP A to the Australian Fund, is the 25% lump sum payment assessable income?

Answers

1. Yes.

2. The Commissioner declines to rule. Please refer to the Reasons for Decision.

3. The Commissioner declines to rule. Please refer to the Reasons for Decision.

This ruling applies for the following period:

Income year ending 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

A person, (the Taxpayer) migrated to Australia and became an Australian resident for tax purposes in the 2011-12 income year.

Prior to coming to Australia, the Taxpayer became a member of Fund A, which is established and controlled overseas.

In the 2017-18 income year, the Taxpayer transferred their entire benefits from Fund A to SIPP A.

The Taxpayer is unable to obtain from the trustee of Fund A the amount in the fund vested in the Taxpayer just before they became an Australian resident.

No contributions or transfers have been made into Fund A since the Taxpayer migrated to Australia.

At a future date, the Taxpayer intends to transfer an amount from SIPP A to another SIPP (SIPP B) so that that the balance remaining in SIPP A is $300,000 plus the applicable fund earnings (if any).

The provider of SIPP A and SIPP B is a foreign bank.

Then, at a later date, the Taxpayer plans to transfer the entire balance from SIPP A to the Australian Fund and make an election to include all of the applicable fund earnings in the assessable income of the Australian Fund.

The Australian Fund is a complying superannuation fund.

Benefits in Fund A, SIPP A and SIPP B are paid to members only on retirement or death.

The Taxpayer’s is over the age of 55.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 305-B

Income Tax Assessment Act 1997 section 305-70

Income Tax Assessment Act 1997 section 305-75

Income Tax Assessment Act 1997 section 305-80

Income Tax Assessment Act 1997 section 960-50

Reasons for decision

Summary

The amount of applicable fund earnings in respect of the lump sum transferred from Fund A to SIPP A is an amount calculated in accordance with section 305-75(3) of the ITAA 1997. Because this was a transfer between two foreign superannuation funds/schemes, this amount is not assessable income and is not exempt income of the Taxpayer in the 2017-18 income year.

However, the applicable fund earnings amount must be included in the calculation of the Taxpayer’s ‘applicable fund earnings’ under section 305-75 of the ITAA 1997 as ‘the previously exempt fund earnings’ when the benefits are transferred from SIPP A to another foreign superannuation fund or to the Australian Fund.

Detailed reasoning

Lump sum payments transferred from foreign superannuation funds

Tax treatment of lump sums received from certain foreign superannuation funds, and schemes for the payment of benefits in the nature of superannuation funds upon retirement or death, is set out in Subdivision 305-B of the ITAA 1997.

If a person receives such a lump sum more than six months after the person becomes an Australian resident, subsection 305-70(2) of the ITAA 1997 applies to include the applicable fund earnings (if any) in the person’s assessable income.

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

If any part of the lump sum is paid to another foreign superannuation fund (or scheme for the payment of benefits in the nature of superannuation upon retirement or death), it is not assessable income and not exempt income under subsection 305-70(4) of the ITAA 1997.

In this case, based on the information provided, Fund A and SIPP A are considered to be foreign superannuation funds or schemes to which Subdivision 305-B of the ITAA 1997 applies.

Applicable fund earnings

Applicable fund earnings is the amount worked out under either subsection 305-75(2) or (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 was not an Australian resident at all times during the period to which the lump sum relates.

In this case, the Taxpayer became an Australian resident after the start of the period to which the lump sum relates, therefore the applicable fund earnings in respect of the transfer from Fund A to SIPP A is worked out in accordance with subsection 305-75(3) of the ITAA 1997 which states:

If you become an Australian resident after the start 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 following amounts:

(i) the amount in the fund that 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 in the fund that was vested in you when the lump sum was paid (before any deduction for *foreign income 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.

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$).

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 (ATO ID 2015/7), the Commissioner determined that each amount in a foreign currency that is an element in the calculation is to be translated to Australian dollars at the exchange rate applicable at the time of receipt of the relevant superannuation lump sum.

Therefore, the applicable fund earnings amount in respect of the lump sum transferred from Fund A to SIPP A in the 2017-18 income year should be calculated by deducting the Australian dollar equivalent of the amount in Fund A vested in the Taxpayer just before the residency date from the amount vested in the Taxpayer on the day of the transfer. Both amounts should be translated using the exchange rate applicable on the day of the transfer.

Amounts to be used in calculation

As the Taxpayer is not able to obtain the value of benefits in Fund A that was vested in the Taxpayer just before the day they became an Australian resident, the Commissioner has estimated that amount using the relevant consumer price index, working backwards from date of transfer to the day before the residency date.

‘The period’ for the purposes of paragraph 305-75(3)(c) of the ITAA 1997 commences on the day on which the person first became an Australian resident for tax purposes and ceases on the day the lump sum is paid. As the Taxpayer was an Australian resident for the whole of this period, the Australian resident days and the total days are the same, and so the proportion to be used in the calculation is 1

There are no previously exempt fund earnings in relation to this transfer because it is the first transfer from one foreign superannuation fund to another foreign superannuation fund.

Calculation of the applicable fund earnings amount

The calculation of the applicable fund earnings amount for the transfer from Fund A to SIPP A is shown in the table below. As discussed above, any amounts in foreign currency are translated into Australian dollars using the exchange rate applicable on the date of the transfer (31 July 2017).

10. Therefore, the ‘applicable fund earnings’ amount in respect of the transfer from Fund A to SIPP B is $Y-X.

As the transfer from Fund A to SIPP A is a transfer between two foreign superannuation funds, the amount is not included in the Taxpayer’s assessable income in the 2017-18 income year. However, in accordance with subsection 305-70(4) of the ITAA 1997, the Taxpayer’s applicable fund earnings in relation to a later lump sum payment out of SIPP A will include this amount as ‘previously exempt fund earnings’

Question 2

Summary

The Commissioner is unable to provide a private ruling on issues relating to non-concessional contributions and excess non-concessional contributions tax because non-concessional contributions tax is not a tax assessed under the ITAA 1997.

Detailed reasoning

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 section 995-1 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 (S(ENCCT)A) 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.

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.

Question 3

Summary

The Commissioner is unable to provide a private ruling on the matters raised in this question because the correctness of the ruling would depend on which assumptions are made about a number of future events/matters.

Detailed reasoning

Private rulings

In accordance with subsection 357-110(1) of Schedule 1 to the TAA, the Commissioner may decline to make a private ruling if the Commissioner considers that the correctness of the ruling would depend on which assumptions are made about a future event or other matter.

Therefore, the Commissioner has declined to make a private ruling in relation to issues raised in question 3 of your application for a private ruling because the correctness of the ruling would depend on which assumptions were made about future events/matters including the following:

● that SIPP A and SIPP B are two separate foreign superannuation funds rather than two accounts within one foreign superannuation fund;

● the date of transfer from SIPP A to SIPP B;

● the date of the transfer from SIPP A to the Australian Fund;

● the amount of each transfer;

● the amount vested in the Taxpayer at the time of each transfer; and

● the applicable exchange rates on the date of each transfer.

The Commissioner does not consider it to be appropriate to make these assumptions.