Edited version of private advice

Authorisation Number: 1051660468912

Date of advice: 6 May 2020

Ruling

Subject: Applicable fund earnings

Question

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

Answer

No

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were a member of the Scheme in Cpuntry A.

The rules of the Scheme provide that benefits can be paid for retirement at the legislative age 55.

Before age 55 the Scheme allows you to withdraw if

·         the market value of your investment is under $XXX,

·         you emigrate, or

·         you become permanently disabled and have to retire early.

You migrated to Australia and became a resident of Australia for taxation purposes.

No contributions were made to the Scheme on or after the residency date.

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 995-1

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

Reasons for decision

Detailed reasoning

A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as being a superannuation 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'.

Based on the rules of the Scheme it meets the definition of a superannuation fund and as it is not an Australian superannuation fund it is a foreign superannuation fund.

Lump sum payments from foreign superannuation funds

When a person receives a lump sum payment from a foreign superannuation fund more than six months after they became an Australian resident, an amount may be included in their assessable income as 'applicable fund earnings' under section 305-70 of the ITAA 1997.

The applicable fund earnings is the amount 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.

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 income 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).

The calculation shows that the applicable fund earning is a negative figure; therefore you do not need to include any amount as assessable income.