Edited version of private advice

Authorisation Number: 1051583028187

Date of advice: 7 November 2019

Ruling

Subject: Lump sum transfer from a foreign superannuation fund

Question

Is any part of the lump sum benefit you received from a foreign pension fund included in your assessable income as applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

Question

Is the foreign pension you receive in Australia included in your assessable income?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2019

Year ending 30 June 2020

The scheme commences on:

1 July 2018

Relevant facts and circumstances

You became a resident of Australia for taxation purposes in the 199X-9Y income year.

While living in a foreign country, you became a member of the foreign fund.

The administrators of the foreign fund are unable to provide the amount in the scheme that was vested in you on the day before the residency date, but you have provided an estimated figure.

There have been no contributions into the foreign fund since you became an Australian resident for tax purposes.

There have been no transfers into the foreign fund since you became an Australian resident for tax purposes.

In the 2018-19 income year, you received a lump sum payment from the foreign fund. This was transferred to your bank account and not paid into an Australian superannuation fund.

You will also receive an annual pension, paid monthly and commencing December 2019.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 305-70

Income Tax Assessment Act 1997 Section 305-75

Income Tax Assessment Act 1997 Subsection305-75(3)

Australian Treaty Series [2003] ATS 22 Article 17-1

Income Tax Assessment Act 1997 Section 6-5

Reasons for decision

If you receive a lump sum from a foreign superannuation fund more than six months after becoming an Australian resident, your assessable income includes any growth (applicable fund earnings) earned on the foreign superannuation interest while you were an Australian resident.

In this case, the foreign fund is a foreign superannuation fund. You became an Australian resident after the start of the period to which the lump sum relates. You remained an Australian resident at all times until the lump sum was paid. Therefore, the applicable fund earnings is calculated in accordance with subsection 305-75(3) of the ITAA 1997.

The effect of section 305-75 of the ITAA 1997 is that you are only assessed on the income you earned on your benefits in the foreign fund while you were an Australian resident. Earnings during periods of non-residency, contributions and transfers into the foreign fund are not taxable when the overseas benefit is paid.

The foreign currency translation rules for lump sum transfers from foreign superannuation funds are explained in ATO Interpretative Decision ATO ID 2015/17: Income tax/Superannuation Foreign currency translation rules in working out 'applicable fund earnings' under section 305-75 of the ITAA 1997. We use the exchange rate that applied when the taxpayer received the lump sum, to work out the Australian dollar equivalent for the amount in the foreign superannuation fund that was vested in the taxpayer on a certain date.

Using an exchange rate applicable on the day of receipt, the 'applicable fund earnings' amount has been calculated in accordance with subsection 305-75(3) of the ITAA 1997.

Question 2

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

Pension income falls within ordinary income and is assessable under the legislation.

In determining liability to Australian tax on foreign sourced income it is necessary to consider not only the Australian income tax laws but also any applicable tax treaty contained in the International Tax Agreements Act 1953 (the Agreements Act).

The agreement between Australia and the UK (the UK agreement) operates to avoid the double taxation of income received by residents of Australia and the UK and explains at item 17 that any pension (including government pensions) and annuities paid to an Australian resident shall be taxable only in Australia.

An amount received as a pension is ordinary income and forms part of your assessable income in the year it is received. Accordingly, as you are an Australian resident your assessable income will include your pension income from the UK.