Edited version of your written advice

Authorisation Number: 1051333160065

Date of advice: 2 February 2018

Ruling

Subject: Lump sum transfer from a foreign superannuation fund

Question 1

Is any part of a lump payment received from a foreign superannuation fund assessable as applicable fund earnings as worked out under section 305-75 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

No.

Question 2

If the answer to Question 1 is yes, will any applicable fund earnings you choose to be treated as assessable income by your SMSF counts towards your concessional contribution cap?

Answer 2

Not Applicable

Question 3

Will any part of the lump sum payment received from a foreign superannuation fund to be included in your assessable income under sections 97 and 99B of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You ceased employment overseas in 20XX.

You became an Australian resident for tax purposes in 20XX.

You held an account in an overseas Registered Retirement Savings Plan (The Scheme).

You state that the value of your benefits in your RRSP on the day before you became an Australian resident for tax purposes was a certain figure.

In 20XX you withdrew all the funds from your RRSP account. The amount was transferred to an Australian superannuation fund.

You no longer hold an interest in The Scheme.

You have not made any contributions to The Scheme since becoming a resident of Australia.

In your application, you advised that your RRSP allows for access of benefits prior to retirement age, i.e. it is not a ‘locked in’ RRSP.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 97

Income Tax Assessment Act 1936 Subsection 99B(1)

Income Tax Assessment Act 1936 Subsection 99B(2)

Income Tax Assessment Act 1936 Subsection 481(3)

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Subsection 6-10(4)

Income Tax Assessment Act 1997 Section 10-5

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

Income Tax Assessment Act 1997 Subdivision 305-B

Income Tax Assessment Act 1997 Section 305--55

Income Tax Assessment Act 1997 Section 305-70

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

Superannuation Industry (Supervision) Act 1993 Subsection 10(1)

Superannuation Industry (Supervision) Act 1993 Section 19

Superannuation Industry (Supervision) Act 1993 Section 62

Reasons for decision

Question 1

Summary

A lump sum payment from a foreign fund can be made to an individual or to your complying Australian superannuation fund.

In this instance the lump sum payment from your RRSP will not be considered a payment from a ‘foreign superannuation fund’, therefore, subdivision 305-B of the Income Tax Assessment Act 1997 (ITAA 1997) has no application in this case.

Detailed reasoning

Lump sum payments transferred from foreign superannuation funds

Subdivision 305-B of the ITAA 1997 deals with superannuation benefits paid from foreign superannuation funds.

Section 305-55 of the ITAA 1997 restricts the application of that Subdivision to lump sums received from certain foreign superannuation funds, or schemes that pay benefits in the nature of superannuation upon retirement or death.

Where a lump sum paid from a foreign superannuation fund is received more than six months after Australian residency, section 305-70 of the ITAA 1997 applies to include any applicable fund earnings in assessable income.

Before determining whether an amount is assessable under section 305-70, it is necessary to ascertain whether the payment is being made from a foreign superannuation fund. If the entity making the payment is not a foreign superannuation fund, then subdivision 305-B will not apply.

Meaning of ‘foreign superannuation fund’

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

(b) a superannuation fund is a foreign superannuation fund for an income year if the fund is not an Australian superannuation fund for the income year.

Subsection 295-95(2) of the ITAA 1997 defines ‘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

(c) at that time either the fund had no member covered by subsection (3) (an active member) or at least 50% of:

(i) the total market value of the fund’s assets attributable to superannuation interests held by active members; or

(ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members;

is attributable to superannuation interests held by active members who are Australian residents.

Thus, a superannuation fund that is established outside of Australia and has its central management and control outside of Australia would qualify as a foreign superannuation fund. The fact that some of its members may be Australian residents would not necessarily alter this.

Meaning of ‘superannuation fund’

‘Superannuation fund’ is defined in subsection 995-1(1) of the ITAA 1997 as having the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA).

Subsection 10(1) of the SISA provides that:

superannuation fund means:

(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.

Meaning of ‘provident, benefit, superannuation or retirement fund’

The High Court examined both the terms superannuation fund and fund in Scott v. Federal Commissioner of Taxation (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 judgment 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 section 62 of the SISA, a regulated superannuation fund must be ‘maintained solely’ for the ‘core purposes’ of providing benefits to a member when the events occur:

● on or after retirement from gainful employment; or

● attaining a prescribed age; and

● on the member’s death (this may require the benefits being passed on to a member’s dependants or legal representative).

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 (SISR)) 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.

Registered Retirement Savings Plan (RRSP)

RRSP is a retirement savings plan that is registered under the tax law provisions of an overseas country. Any income earned in the RRSP is usually exempt from tax for the period the funds remain in the plan.

A plan participant may make contributions to the RRSP up until the year in which the plan participant turns age 71. A deduction up to prescribed limits may be claimed under the relevant Income Tax Act for contributions made to the RRSP.

Withdrawals from the RRSP can be made at any time. However, the withdrawal is subject to income tax in the year in which the withdrawal is made.

Withdrawals up to certain prescribed limits may be made from an RRSP to participate in either the Home Buyers Plan (HBP) or the Lifelong Learning Plan (LLP). These withdrawals are not subject to income tax provided certain requirements are met.

In the year in which the plan participant turns age 71 the funds in the RRSP must be:

● withdrawn;

● transferred to a registered retirement income fund (RRIF);

● used to purchase an annuity for life; or

● used to purchase an annuity for a fixed term.

You have indicated that the benefits in your RRSP can be accessed for pre-retirement purposes. Therefore, your RRSP does not meet the 'sole purpose test' and therefore cannot be considered a 'superannuation fund' for Australian income tax purposes.

As such, on the basis of the information provided, the Commissioner considers that the lump sum payments from your RRSP was not transferred from a ‘foreign superannuation fund’ as defined in subsection 995-1(1) of the ITAA 1997.

Consequently, Subdivision 305-B of the ITAA 1997 does not apply to the lump sum payment that you received from your RRSP.

Question 2

As the entity making the payment is not a foreign superannuation fund, Subdivision 305-B of the ITAA 1997 does not apply to the lump sum payment that you received from your RRSP.

There are no applicable fund earnings; therefore the payment will not have any impact on your concessional contribution cap.

Question 3

A foreign trust is defined in subsection 481(3) of the Income Tax Assessment Act 1936 (ITAA 1936) as a trust which is not an Australian trust, and which did not result from a will or an intestacy in relation to the estate of a deceased person.

You have a RRSP account in an overseas country. A RRSP is a personal savings plan that gives you tax advantages for setting aside money for retirement.

This account is set up for the exclusive benefit of you or your beneficiaries.

The RRSP is a foreign trust as defined in subsection 481(3) of the ITAA 1936 and is therefore a foreign investment fund (FIF). The RRSP is not a superannuation fund for the purposes of the ITAA 1997 and the ITAA 1936 as it allows for withdrawals for pre-retirement purposes. Therefore an RRSP is not established solely for the provision of retirement benefits.

Repeal of FIF measures

On 14 July 2010, the FIF measures were repealed and do not apply from the 2010-11 income year onwards.

If you have an interest in a FIF, you will be subject to the general tax rules applicable to your circumstances – for example, the general tax rules relating to trust income.

Assessability of trust income

Section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes statutory income amounts that are not ordinary income but are included in assessable income by another provision.

Subsection 6-10(4) of the ITAA 1997 provides that for an Australian resident, your assessable income includes statutory income derived from all sources, whether in or out of Australia, during the income year.

Section 10-5 of the ITAA 1997 lists certain statutory amounts that form part of assessable income. Included in this list is income derived pursuant to section 99B of the ITAA 1936.

Subsection 99B(1) of the ITAA 1936 provides that where, during a year of income, a beneficiary who was a resident at any time during the year is paid a distribution from a trust, or has an amount of trust property applied for their benefit, the amount is to be included in the assessable income of the beneficiary.

Subsection 99B(2) of the ITAA 1936 modifies the rule in subsection 99B(1) and has the effect that the amount to be included in assessable income under subsection (1) is not to include any amount that represents either:

● the corpus of the trust (paragraph 99B(2)(a) of the ITAA 1936)

● amounts that would not have been included in the assessable income of a resident taxpayer (paragraph 99B(2)(b) of the ITAA 1936), and

● amounts previously included in the beneficiaries income under section 97 of the ITAA 1936 (paragraph 99B(2)(c) of the ITAA1936).

Paragraph 99B(2)(a) of the ITAA 1936 requires regard to be had to whether or not the amount derived by a trust estate was of a kind that would have been assessable if derived by a resident taxpayer. Thus, for example, if, in accordance with the terms of the trust, income were accumulated and added to corpus and the capitalised amount is subsequently paid or applied for the benefit of a beneficiary, the beneficiary would be assessable on the amount provided (subject to other paragraphs of subsection 99B(2) of the ITAA 1936).

In this case, you have withdrawn from your RRSP account. When you withdraw from the RRSP, income has been paid to you or applied for your benefit. Therefore, any income that is accumulated in the RRSP is assessable to you when you withdraw the funds. The accumulated assessable income is the difference between the value of your RRSP on the date you became an Australian resident and value at redemption.