Edited version of private advice

Authorisation Number: 1051522470274

Date of advice: 1 July 2019

Ruling

Subject: Lump sum payments from multiple foreign superannuation funds

Question 1

Is any part of the lump sum benefits paid from your foreign fund assessable as applicable fund earnings under section 305-70 of the Income Tax Assessable Act 1997 (ITAA 1997)?

Answer

Yes

Question 2

Is any part of the lump sum benefits paid from your Superannuation Fund assessable as applicable fund earnings under section 305-70 of the Income Tax Assessable Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods:

Income year ending 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

·        The Taxpayer migrated to Australia on a temporary visa.

·        During the 2011/12 financial year, the Taxpayer became a permanent resident of Australia.

·        The Taxpayer held interests in two foreign pension schemes Fund A and Fund B.

·        Subsequently, the Taxpayer opened a new foreign pension scheme, Fund C.

·        The Taxpayer transferred their entire interest in Fund A to Fund C (Payment 1).

·        During the 2011/12 financial year, the Taxpayer transferred their entire interest in Fund B to Fund C (Payment 2).

·        Also during the 2011/12 financial year an amount was transferred from Fund C into an Australian Fund, a complying superannuation fund in Australia (Payment 3).

·        During the 2012/13 financial year an amount was transferred from Fund C into the Australian Fund (Payment 4).

·        During the 2014/15 financial year the Taxpayer opened a new foreign pension scheme, Fund D.

·        During the 2014/15 financial year, the Taxpayer made a partial transfer from Fund C into Fund D (Payment 5).

·        No other contributions were made into Fund D.

·        During the 2016/17 financial year an amount was transferred from Fund D into a SMSF (Payment 6).

·        The Taxpayer no longer has an interest in Fund D.

·        All four foreign schemes are pension schemes established and controlled in the foreign country.

·        All four foreign schemes are considered to be foreign superannuation funds.

·        The Taxpayer still has an interest in Fund C.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 305-70

Income Tax Assessment Act 1997 section 305-75

Income Tax Assessment Act 1997 section 960-50

Income Tax Assessment Act 1997 section 995-1

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

We followed these ATO view documents

ATO Interpretative Decision ATO ID 2015/7: Foreign currency translation rules in working out 'applicable fund earnings' under section 305-75 of the ITAA 1997

Reasons for decision

Lump sum payments transferred from foreign superannuation funds

1.     When a person receives a lump sum from a foreign superannuation fund more than six months after they became an Australian resident, the growth they earned on their foreign superannuation during the period when they were a resident of Australia is included in their assessable income as 'applicable fund earnings' under section 305-70 of the ITAA 1997.

2.     A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as being a fund that is not an Australian superannuation fund. A superannuation fund has the meaning given by subsection 10(1) of the Superannuation Industry (Supervision) Act 1993, which requires that the fund is a 'provident, benefit, superannuation or retirement fund'.

3.     In this case, the benefits from your UK Pension Schemes cannot be accessed other than at retirement, death or incapacity and therefore meet the definition of foreign superannuation funds.

Applicable fund earnings

4.     The applicable fund earnings amount is worked out under either subsection 305-75(2) or (3) of the ITAA 1997. Subsection 305-75(2) of the ITAA 1997 applies where the person was an Australian resident at all times during the period to which the lump sum relates. Subsection 305-75(3) of the ITAA 1997 applies where the person was not an Australian resident at all times during the period to which the lump sum relates.

5.     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 earningsis 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).

6.     'Previously exempt fund earnings' are any amounts in the lump sum paid to Australia by a foreign superannuation fund which had previously been transferred into that fund from a second foreign superannuation fund.

7.     They are included in applicable fund earnings to the extent that they would have been included in assessable income under s 305-70(2) of the ITAA 1997 if they had originally been paid to Australia instead of being transferred to the second foreign superannuation fund.

8.     The effect of section 305-75 of the ITAA 1997 is that only the income earned in respect of the foreign superannuation fund since Australian residency, less any contributions made in that period, is assessed. Further, any amounts representative of earnings during periods of non-residency, and transfers into the paying fund do not form part of the taxable amount when the lump sum is paid.

Foreign currency conversion

9.     Subsection 960-50(1) of the ITAA 1997 states that an amount in a foreign currency is to be translated into Australian dollars. 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.

10.  In ATO Interpretative Decision ATO ID 2015/7: 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 the exchange rate at which it is reasonable to translate amounts into Australian currency for the purposes of section 305-75 of the ITAA 1997, is the exchange rate applicable at the time of receipt of the relevant superannuation lump sum.

11.  Therefore, the 'applicable fund earnings' amount in respect of the lump sum amounts transferred from the foreign pension schemes should be included in your assessable income for the 2016-17 financial year.

12.  As the entirety of the benefits in Fund D was transferred to an Australian superannuation fund, you can elect to treat part of the applicable fund earnings as assessable in the SMSF under section 305-80 of the ITAA 1997.