Edited version of private advice

Authorisation Number: 1052014740155

Date of advice: 11 August 2022

Ruling

Subject: Applicable fund earnings - transfer from foreign fund

Question

Is any part of the lump sum payment received by the Taxpayer from the foreign superannuation 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

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 X months after becoming an Australian resident, the Taxpayer's Australian superannuation fund received a lump sum payment from the foreign 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 Section 305-80

Reasons for decision

In accordance with section 305-70 of the ITAA 1997, If an individual taxpayer receivesa lump sum from a foreign superannuation fund more than X 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. 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. We use the exchange rate that applied when the Australian super fund 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.

Alternatively, if the amount is the entire amount in their foreign super fund, that amount can be transferred to a complying Australian super fund as per section 305-80 of the ITAA 1997.

If an election is made, the fund can include the applicable fund earnings in the fund's assessable income for the 2022 income year. To make this choice, the Taxpayer should complete the 'Choice to have your Australian fund pay tax on a foreign super transfer' (NAT 11724) form and include the above amount at Question 16.

If this option is chosen, the above amount does not need to be declared in the Taxpayer's assessable income for the 2022 income year. This election cannot be varied or revoked and must be made before the Taxpayer's tax return is lodged for the same income year.