Edited version of your written advice

Authorisation Number: 1051482931452

Date of advice: 18 February 2019

Ruling

Subject: Foreign superannuation fund

Question 1

Will your overseas pension be assessable income?

Answer

Yes.

Question 2

Upon withdrawal of a lump sum from your overseas pension fund, does any of this lump sum relate to an earlier year for tax purposes?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2019

The scheme commences on:

1 July 2018

Relevant facts

You migrated to Australia several years ago and are an Australian resident for tax purposes.

While living overseas, you became a member of a foreign superannuation fund.

You can access your benefits in the foreign superannuation fund only on:

● redundancy and early retirement;

● ill-health retirement; or

● retirement on or after scheme pension age.

You are currently working and intend to retire in the future when you will be over 60 years.

You can begin to draw a pension and a lump sum from your foreign superannuation or you can delay it until after your retirement.

You intend to take you benefits from the foreign superannuation fund in part as a pension and in part as a lump sum.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 27H

Income Tax Assessment Act 1936 Section 159ZRA

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 10-5

International Tax Agreements Act 1953 Section 4

Reasons for Decision

Question 1

Assessable income – foreign pension

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes the ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Section 6-10 of the ITAA 1997 further provides that assessable income includes statutory income amounts which are not ordinary income but are included in assessable income by another provision. Subsection 6-10(4) of the ITAA 1997 states that the assessable income of an Australian resident includes statutory income from all sources, whether in or out of Australia.

Section 10-5 of the ITAA 1997 lists those provisions about assessable income. Included in this list is section 27H of the Income Tax Assessment Act 1936 (ITAA 1936) which provides that annuities and pensions paid from foreign superannuation funds or foreign scheme to provide superannuation benefits are included in assessable income.

Some foreign payments, for example, certain war time compensation payments are specifically exempted under the ITAA 1997. However your pension is not among those listed as exempt.

Although many super benefits from a taxed source may be tax free for people aged 60 and over, such benefits are tax free only if paid from an Australian complying superannuation plan. As such, the tax free status does not apply to your foreign superannuation benefits.

As the payments are not exempt by the operation of Australian tax laws it is then necessary to look at the terms of any international agreement between Australia and country A contained in the International Tax Agreements Act 1953 (the Agreements Act).

Section 4 of the Agreements Act provides that the Agreements Act incorporates the ITAA 1936 and ITAA 1997 and those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited situations that are not relevant in the present case).

Paragraph (1) of the relevant article of the relevant Agreement provides that pensions and annuities paid to an Australian resident are taxable only in Australia.

As you are an Australian resident, your pension payments from country A are assessable income under section 27H of the ITAA 1936.

Question 2

Lump sum payment

Individual taxpayers who receive assessable lump sum payments containing an amount that accrued in earlier income years may be entitled to a tax offset under section 159ZRA of the ITAA 1936. The tax offset is intended to overcome the problem of the lump sum attracting more tax in the year of receipt than would have been payable if the payment had been taxed in the year in which it accrued.

A person is entitled to a lump sum payment in arrears tax offset where:

● the assessable income of the taxpayer of a year of income includes an eligible lump sum, and

● the total arrears amount is not less than 10% of the amount (if any) remaining after deducting the total arrears amount from the normal taxable income of the current year.

Generally speaking when you apply for and receive a superannuation lump sum after retirement, you are not entitled to a lump sum in arrears tax offset. This is because you were not entitled to receive the lump sum or any portion of it in previous years. Therefore the lump sum does not relate to an earlier year for tax purposes. The lump sum is assessable in the year of receipt.