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Edited version of private advice
Authorisation Number: 1051618843743
Date of advice: 18 December 2019
Ruling
Subject: Lump sum payment from a foreign superannuation fund
Question
Is any part of the lump sum benefit received from the foreign fund assessable as applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?
Answer
Yes.
This ruling applies for the following period:
Year ended 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
While living in a foreign country, your client became a member of the foreign fund.
Your client became a resident of Australia for taxation purposes in the 19XX-XX income year.
A redress payment in respect of your client was made into the fund in the 19XX-XXXX income year.
There have been no other contributions into the foreign fund since your client 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 20XX-XX income year, your client received a lump sum payment from the foreign fund. This was transferred to your client's bank account and not paid into an Australian superannuation fund.
Your client no longer has an interest in the fund.
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)
All references are to the ITAA 1997 unless otherwise indicated.
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. Your client became an Australian resident after the start of the period to which the lump sum relates. They 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).
The effect of section 305-75 is that your client is assessed on the income earned on their benefits in the foreign fund while they 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).