Edited version of private advice

Authorisation Number: 1051952012137

Date of advice: 9 March 2022

Ruling

Subject: Applicable fund earnings - lump sum transfer from foreign fund

Question

Is any part of the lump sum payment 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 2020

The scheme commences on:

1 July 2019

Relevant facts and circumstances

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

The taxpayer became a resident of Australia for taxation purposes.

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

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

More than six months after becoming an Australian resident, the Taxpayer received a lump sum payment from the foreign fund.

The administrators of the foreign fund are unable to provide the amount in the scheme that was vested in the Taxpayer when he became an Australian resident.

We have estimated the value of the Taxpayer's benefit in the foreign fund on that date.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 305-70

Income Tax Assessment Act 1997 Section 305-75

Reasons for decision

In accordance with 305-70 of the ITAA 1997, if an individual taxpayer receivesa 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 relevant fund is a foreign superannuation fund. The Taxpayer became an Australian resident after the start of the period to which the lump sum relates. The Taxpayerremained an Australian resident at all times until the lump sum was paid. Therefore, the applicable fund earnings are calculated in accordance with subsection 305-75(3) of the ITAA 1997.

The effect of section 305-75 of the ITAA 1997 is thatthe individual Taxpayer isonly assessed on the income theyearned on theirbenefits in the foreign fund whiletheywere 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.

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 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.

The 'applicable fund earnings' amount has been calculated in accordance with subsection 305-75(3) of the ITAA 1997.

The Taxpayer should include their applicable fund earnings in their assessable income for the relevant income year.