| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of private advice
Authorisation Number: 1051617290375
Date of advice: 24 March 2020
Ruling
Subject: Foreign income tax
Question
Is the UK Lifetime Allowance Charge (UK LAC) a foreign income tax for the purposes of sub-paragraph 305-75(2)(a)(ii) and subsection 305-75(2)(b) of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes
This ruling applies for the following period:
1 July 20XX to 30 June 20XX
The scheme commences on:
20 June 20XX
Relevant facts and circumstances
You were born in Australia and immigrated to the UK at which point you became a non-resident of Australia.
You returned to live in Australia at a later date, resuming Australian tax residency from this date.
In 20XX, Fund B received a transfer from Fund A for the member. The application of subsection 305-75(5) of the ITAA 1997 has resulted in an amount being regarded as previously exempt fund earnings and attaches to this transfer. This was the first deposit received by Fund B.
In 20XX, Fund B made a transfer to a complying Australian superannuation fund, extinguishing the member's entitlement in Fund B. The difference between the amount received by Fund B and the amount being paid out of the Fund B was remitted to HRMC in satisfaction of the Lifetime Allowance charge which became payable at that time.
Relevant legislative provisions
Income Tax Assessment Tax Act 1997 subparagraph 305-75(2)(a)(ii)
Income Tax Assessment Tax Act 1997 paragraph 305-75(2)(b)
Income Tax Assessment Tax Act 1997 section 770-15
Reasons for decision
Section 1 of the Income Tax Act 2007 (UK) (ITA) provides an overview of income tax acts that provides for income tax:
(a) Income Tax (Earnings and Pensions) Act 2003
(b) Income Tax (Trading and Other Income) Act 2005
(c) Income Tax Act 2007
plus provisions in:
(a) Income and Corporation Taxes Act 1988, Part 18
(b) Capital Allowances Act 2001
(c) Finance Act 2004, Part 4 [which includes provision for the imposition and administration of the lifetime allowance charge]
It also notes that Schedule 1 of the Interpretation Act 1978 UK (c.30) defines 'the Income Tax Acts' as all enactments relating to income tax.
Section 23 of the ITA 2007 provides a method statement for calculating the income tax liability of a person (the taxpayer). It goes through numerous steps, which includes:
Step 7
Add to the amount of tax left after Step 6 any amounts of tax for which the taxpayer is liable for the tax year under any provision listed in relation to the taxpayer in section 30.
The result is the taxpayer's liability to income tax for the tax year.
Section 30 of the ITA 2007 expands on the provisions referred to in Step 7 above, and includes:
section 214 of FA 2004 (pension schemes: the lifetime allowance charge)
Subsection 214(1) of the Finance Act 2004 UK (FA 2004) provides:
(1) A charge to income tax, to be known as the lifetime allowance charge, arises where-
(a) a benefit crystallisation event occurs in relation to an individual who is a member of one or more registered pension schemes, and
(b) either the first lifetime allowance charge condition or the second lifetime allowance charge condition is met. (emphasis added)
Section 770-15 of the ITAA 1997 provides the meaning of foreign income tax, it states:
(1) Foreign income tax means tax that:
a. is imposed by a law other than an Australian law; and
b. is:
i. tax on income; or
ii. tax on profits or gains, whether of an income or capital nature; or
iii. any other tax, being a tax that is subject to an agreement having the force of law under the International Tax Agreements Act 1953.
In this instance it is quite clear from the discussion above that the law was imposed by the UK parliament.
Further, Subsection 214(1) of the FA 2004 explicitly states that the LAC is a charge to income tax.
As such, the LAC is a foreign income tax for the purposes of section 770-15 of the ITAA 1997.
You have further asked whether the LAC is a foreign income tax for the purposes of subsection 305-75(2)(b) of the ITAA 1997. The outcome would be the same as outlined above in response to subparagraph 305-75(2)(a)(ii) of the ITAA 1997.