Edited version of private advice

Authorisation Number: 1052013910982

Date of advice: 8 August 2022

Ruling

Subject: Foreign fund transfer - applicable fund earnings

Question

Is any part of the lump sum payment received by the Taxpayer from their foreign fund (the 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:

30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Taxpayer ceased employment in the Country A during the 20XX-XX income year.

The Taxpayer became a resident of Australia for taxation purposes during the 20XX-XX income year.

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

The administrators of the foreign fund are unable to provide the amount in the scheme that was vested in the Taxpayer on the day immediately prior to them becoming an Australian tax resident.

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

The Taxpayer received a lump sum payment from the Fund in September 20XX.

We are satisfied that the Fund meets the definition of a 'foreign superannuation fund' under section 995-1 of the ITAA 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 305-70

Income Tax Assessment Act 1997 Section 305-75

Income Tax Assessment Act 1997 Subsection 995-1(1)

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

Reasons for decision

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

In this case, the Fund is a foreign superannuation fund. The Taxpayer became an Australian resident before the start of the period to which the lump sum relates. The Taxpayer 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 thatthe Taxpayer is only assessed on the income they earned ontheir 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.

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 the Taxpayer, or their 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 them on a certain date.