Edited version of private advice

Authorisation Number: 1051912378527

Date of advice: 20 October 2021

Ruling

Subject: Lump sum payments from foreign superannuation funds

Question

Is any part of the lump sum payment received by you 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:

1 July 2018 to 30 June 2019.

The scheme commences on:

1 July 2018.

Relevant facts and circumstances

1.            You became a resident of Australia for taxation purposes in March 2001.

2.            While living in United Kingdom (UK), you became a member of the UK fund.

3.            The rules of the UK fund provide that benefits can be paid on retirement, long term disability and death.

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

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

6.            In May 2019, you received a lump sum payment of from the UK fund.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subdivision 305-B

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 subsection 995-1(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

If an individual taxpayer receives a lump sum from a foreign superannuation fund more than six months after becoming an Australian resident, the taxpayer's assessable income includes any growth (applicable fund earnings) earned on the foreign superannuation interest while the taxpayer was an Australian resident.

In this case, the UK 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.

An amount of applicable fund earnings may also include amounts of previously exempt fund earnings which occur where an amount in a foreign super fund is transferred to another foreign super fund before being received in Australia. These earnings would not otherwise be included and are set aside until the lump sum is transferred to you, or your complying Australian super fund.

The foreign currency translation rules for lump sum transfers from foreign superannuation funds are explained 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 (ATO ID 2015/7). We use the exchange rate that applied when you received the lump sum, to work out the Australian dollar equivalent for the amount in the foreign superannuation fund that was vested in you on a certain date.

Using an exchange rate of A$1 = £xxx as at the payment date, the 'applicable fund earnings' amount has been calculated in accordance with subsection 305-75(3) of the ITAA 1997.

You should include yourapplicable fund earnings of $xxx(calculated as shown in the table below) in your assessable income for the 2018-19 income year: