Edited version of private advice

Authorisation Number: 1052044675678

Date of advice: 12 April 2024

Ruling

Subject:Foreign fund transfer of benefits

Question 1

Will the interim and final payment from the United Kingdom (UK) scheme be taxed in Australia as lump sum payments pursuant to section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Are the applicable fund earnings on the pension commencement lump sum, nil?

Answer

No, an amount in respect of the lump sum is applicable fund earnings that is assessable income.

Question 3

Are the applicable fund earnings on the interim payment, nil?

Answer

No, an amount in respect of the lump sum is applicable fund earnings that is assessable income.

This ruling applies for the following period:

1 July 2022 to 30 June 2023

Relevant facts and circumstances

1.      You became a resident of Australia in 20XX (residency date).

2.      You held benefits in Country A pension schemes Fund A and Fund B at residency date.

3.      Contributions totalling £pound;xxx were made into Country A Fund C after residency date.

4.      After residency date, benefits in Fund A were transferred to Fund D, a Country A pension scheme.

5.      After residency date, Funds B, C and D were transferred to Fund E, a Country A pension scheme.

6.      Benefits of £pound;xxx in Fund E were transferred to Fund F, a Country A pension scheme. The value in Fund E after the transfer was £pound;xxx.

7.      Total benefits in Fund F were transferred to an Australian superannuation fund (Australian Fund). The exchange rate was AUD $1 = £pound;0.xxxx.

8.      You made a valid choice using the form Completing your choice to have your Australian super fund pay tax on a foreign super transferto include the applicable fund earnings in the Australian Fund's assessable income in relation to a lump sum paid to it. The amount of applicable fund earnings that you chose was $xxx.

9.      You received a Pension Commencement Lump Sum of £pound;xxx from Fund E. The balance in Fund E after the lump sum payment was £pound;xxx.

10.   You received a lump sum payment from Fund E. The balance after the lump sum payment was £pound;xxx. The RBA exchange rate was AUD $1 = £pound;0.xxxx.

11.   You have stated that all your Country A superannuation funds are foreign superannuation funds as defined in the ITAA 1997 and Superannuation Industry (Supervision) Act 1993 (SISA). The response in this ruling proceeds on that basis.

12.   You have stated that you may transfer your remaining benefits in Fund E to Australia as a lump sum, either to yourself or paid into a complying superannuation fund on your behalf, though that is not the subject of this ruling.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 295-95

Income Tax Assessment Act 1997 Section 305-70

Income Tax Assessment Act 1997 Section 305-75

Income Tax Assessment Act 1997 Section 305-80

Income Tax Assessment Act 1997 Section 960-50

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

Income Tax Assessment (1997 Act) Regulations 2021 Regulation 960-50.01(1)

Superannuation Industry (Supervision) Act 1993 subsection 10 (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

Applicable fund earnings

When a person receives a lump sum from a foreign superannuation fund more than six months after they became an Australian resident, then broadly, the earnings on their foreign superannuation during the period when they were a resident of Australia is included in their assessable income as 'applicable fund earnings' under section 305-70 of the ITAA 1997.

The applicable fund earnings amount is worked out in relation to a lump sum paid from a foreign superannuation fund under either subsection 305-75(2) or subsection 305-75(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.

For subsection 305-75(2) and subsection 305-75(3) of the ITAA 1997, the period to which the lump sum relates is the period during which funds are accumulated in a particular foreign superannuation fund for a member that has a relation to the superannuation lump sum paid by that fund. That is consistent with other parts of those subsections, which also focus on the foreign superannuation fund from which the lump sum is paid.

Subsection 305-75(2) of the ITAA 1997 states, if you were an Australian resident at all times during the period to which the lump sum relates, the amount of your applicable fund earnings is the amount (not less than zero) worked out as follows:

a)    work out the total of the following amounts:

(i) the part of the lump sum that is attributable to contributions made by or in respect of you on or after

the day when you became a member of the fund (the start day);

(ii) the part of the lump sum (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)   add the total of all your previously exempt fund earnings (if any) covered by subsections (5) and (6).

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 (but before you receive it), 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 remainder of 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 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).

Previously exempt fund earnings

Any part of the lump sum paid by a foreign superannuation fund, including any amount of applicable fund earnings, that is paid into another foreign superannuation fund is not assessable income and is not exempt income under subsection 305-70(4) of the ITAA 1997 in the income year in which the transfer occurs.

However, your applicable fund earnings in relation to a later lump sum payment out of that other foreign superannuation fund may include an amount of previously exempt fund earnings attributable to that later lump sum. Whether you have an amount of previously exempt fund earnings in respect of a later lump sum is determined under subsection 305-75(5) and subsection 305-75(6) of the ITAA 1997.

Subsections 305-75(5) and (6) of the ITAA 1997 state:

(5) You have an amount of previously exempt fund earnings in respect of the lump sum if:

(a) part or all of the amount in the fund that was vested in you when the lump sum was paid

(before any deduction for *foreign income tax) is attributable to the amount; and

(b) the amount is attributable to a payment received from a *foreign superannuation fund; and

(c) the amount would have been included in your assessable income under subsection 305-70(2)

by the application of this section, but for the payment having been received by another foreign

superannuation fund.

(6) The amount of your previously exempt fund earnings is the amount mentioned in paragraph (5)(c) (disregarding the addition of previously exempt fund earnings under subsection (2) or (3) of this section).

Subsection 305-75(5) of the ITAA 1997 identifies whether you have an amount of previously exempt fund earnings. That may arise where there is an amount in respect of the lump sum being paid by a foreign superannuation fund, which had previously been paid into that fund from another foreign superannuation fund, and would have been included in your assessable income under subsection 305-70(2) of the ITAA 1997 but for it being received by a foreign superannuation fund.

Subsection 305-75(6) of the ITAA 1997 states that the amount of previously exempt fund earnings is the amount mentioned in paragraph 305-75(5)(c), though disregards the addition of previously exempt fund earnings under subsection 305-75(2) or (3). The requirement to disregard the addition of earlier applications of subsection 305-75(6) of the ITAA 1997 ensures that amounts of previously exempt fund earnings are not duplicated.

Multiple lump sum payments

Where multiple lump sums have been paid to you from the same foreign superannuation fund, then subsection 305-75(4) of the ITAA 1997 provides a modification to the calculation of applicable fund earnings. The subsection provides:

If the lump sum is not the first lump sum from the fund you have received to which this section applies, for subsections (2) and (3) the start day is the day after you received the most recent such lump sum.

Accordingly, where you are an Australian resident at all times during the period to which a lump sum relates, and the lump sum is not the first lump sum paid from the fund then subsection 305-75(4) of the ITAA 1997 modifies the applicable fund earnings calculation under subsection 305-75(2) of the ITAA 1997. In particular, the 'start date' in paragraph 305-75(2)(a)(i) of the ITAA 1997 for the purpose of calculating contributions made by or in respect of you, is modified to the day after you received the most recent lump sum.

Also, where you are not an Australian resident at all times during the period to which a lump sum relates, and the lump sum is not the first lump sum paid from the fund then subsection 305-75(4) of the ITAA 1997 modifies the applicable fund earnings calculation under subsection 305-75(3) of the ITAA 1997. Similarly, the 'start date' in paragraph 305-75(3)(a)(i) of the ITAA 1997 for the purpose of calculating the amount vested in you just before you first became an Australian resident during the period, is modified to the day after you received the most recent lump sum.

Foreign currency conversion

The foreign currency translation rules for lump sums paid by 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).

For the purposes of working out your applicable fund earnings in relation to a superannuation lump sum under section 305-75 of the ITAA 1997, the correct rule for translating foreign currency into Australian dollars is the rule described in Item 11A of the table in subsection 960-50(6) of the ITAA 1997 (as modified by regulation 960-50.01(1) of the Income Tax Assessment (1997 Act) Regulations 2021).

This means that the exchange rate at which it is reasonable to translate amounts into Australian currency for the purposes of section 305-75 of the ITAA 1997, is the exchange rate applicable at the time of receipt of the relevant superannuation lump sum directly by you or your complying superannuation fund. Specifically, under subsection 960-50(4) of the ITAA 1997, each amount or component that is denoted in a foreign currency must be translated into an Australian dollar equivalent first before any calculations are undertaken.

Applicable fund earnings choice

You may decide to pay your superannuation lump sum into your complying superannuation fund. If you do so, you may also choose to have all or part of your applicable fund earnings in respect of the lump sum included in the assessable income of the fund. Correspondingly, the amount of applicable fund earnings that would otherwise be included in your assessable income is then reduced by the applicable fund earnings chosen to be assessable in the fund.

You can make a choice, where section 305-70 of the ITAA 1997 applies, for applicable fund earnings to be included in the assessable income of your complying superannuation fund where:

•         you are taken to have received the lump sum under section 307-15 of the ITAA 1997; and

•         the whole of the lump sum is paid into a complying superannuation fund; and

•         immediately after the lump sum is paid you no longer have a superannuation interest in the foreign superannuation fund.

You must make your choice in writing. You have done this by completing the form Completing your choice to have your Australian super fund pay tax on a foreign super transfer (NAT 11724).

Your concessional contributions exclude applicable fund earnings that are included in the complying superannuation fund's assessable income due to a choice made under section 305-80 of the ITAA 1997. Any amount of the lump sum that is not included in the fund's assessable income as applicable fund earnings will be a non-concessional contribution of the fund.

Transfer 1: Fund A to Fund D

As you became a member of Fund A before you became a resident of Australia, the applicable fund earnings on this lump sum will be worked out in accordance with subsection 305-75(3) of the ITAA 1997.

You have indicated that Fund A and Fund D are both foreign superannuation funds, and on that basis any part of the lump sum paid by Fund A to Fund D is not assessable income and is not exempt income under subsection 305-70(4) of the ITAA 1997.

However, an amount of previously exempt fund earnings may arise in relation to the lump sum under subsections 305-75(5) and 305-75(6) of the ITAA 1997. Such amounts may be included in the applicable fund earnings calculations in relation to a later lump sum payment by Fund D.

Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by your complying Australian Fund in 20XX. In this case the relevant exchange rate was AUD $1 = £pound;0.xxxx.

Table 1: Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by your complying Australian Fund in 20XX. In this case the relevant exchange rate was AUD$1 = £pound;0.xxxx.

Transfer 2: Fund D to Fund E

As you became a member of Fund D after you became a resident of Australia, the applicable fund earnings on this lump sum will be worked out in accordance with subsection 305-75(2) of the ITAA 1997.

On the basis that Fund E is a foreign superannuation fund, any part of the lump sum paid by Fund D to Fund E is not assessable income and is not exempt income under subsection 305-70(4) of the ITAA 1997.

However, an amount of previously exempt fund earnings may arise in relation to the lump sum under subsections 305-75(5) and 305-75(6) of the ITAA 1997. Such amounts may be included in the applicable fund earnings calculations in relation to a later lump sum payment by Fund E.

Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by your complying Australian Fund in 20XX. In this case the relevant exchange rate was AUD $1 = £pound;0.xxxx.

Table 2: Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by your complying Australian Fund in 20XX. In this case the relevant exchange rate was AUD$1 = £pound;0.xxxx.

Transfer 3: Fund B to Fund E

As you became a member of Fund B before you became a resident of Australia, the applicable fund earnings on this lump sum will be worked out in accordance with subsection 305-75(3) of the ITAA 1997.

On the basis that Fund E is a foreign superannuation fund, any part of the lump sum paid by Fund B to Fund E is not assessable income and is not exempt income under subsection 305-70(4) of the ITAA 1997.

However, an amount of previously exempt fund earnings may arise in relation to the lump sum under subsections 305-75(5) and 305-75(6) of the ITAA 1997. Such amounts may be included in the applicable fund earnings calculations in relation to a later lump sum payment by Fund E.

Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by your complying Australian Fund in 20XX. In this case the relevant exchange rate was AUD $1 = £pound;0.xxxx.

Table 3: Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by your complying Australian Fund in 20XX. In this case the relevant exchange rate was AUD$1 = £pound;0.xxxx.

Transfer 4: Fund C to Fund E

As you became a member of Fund C after you became a resident of Australia, the applicable fund earnings on this lump sum will be worked out in accordance with subsection 305-75(2) of the ITAA 1997.

On the basis that Fund E is a foreign superannuation fund, any part of the lump sum paid by Fund C to Fund E is not assessable income and is not exempt income under subsection 305-70(4) of the ITAA 1997.

However, an amount of previously exempt fund earnings may arise in relation to the lump sum under subsections 305-75(5) and 305-75(6) of the ITAA 1997. Such amounts may be included in the applicable fund earnings calculations in relation to a later lump sum payment by Fund E.

Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by your complying Australian Fund in 20XX. In this case the relevant exchange rate was AUD $1 = £pound;0.xxxx.

Table 4: Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by your complying Australian Fund in 20XX. In this case the relevant exchange rate was AUD$1 = £pound;0.xxxx.

Transfer 5: Fund E to Fund F

As you became a member of Fund E after you became a resident of Australia, the applicable fund earnings on this lump sum will be worked out in accordance with subsection 305-75(2) of the ITAA 1997.

On the basis that Fund F is a foreign superannuation fund, any part of the lump sum paid by Fund E to Fund F is not assessable income and is not exempt income under subsection 305-70(4) of the ITAA 1997.

However, an amount of previously exempt fund earnings may arise in relation to the lump sum under subsections 305-75(5) and 305-75(6) of the ITAA 1997. Such amounts may be included in the applicable fund earnings calculations in relation to a later lump sum payment by Fund F.

Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by your complying Australian Fund in 20XX. In this case the relevant exchange rate was AUD $1 = £pound;0.xxxx.

Table 5: Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by your complying Australian Fund in 20XX. In this case the relevant exchange rate was AUD$1 = £pound;0.xxxx.

For the purposes of item B in the table, the entire amount of the lump sum paid by Fund E is attributable to amounts that it received from other foreign superannuation funds. That is because, based on the facts and circumstances, the amount vested in Fund E had continually declined during the period due to losses.

For the purposes of item F in the table, the amount reflects the applicable fund earnings (as future previously exempt fund earnings) in relation to transfers 2 to 4 into Fund E (£pound;xxx), limited by the amount of the lump sum now being paid (£pound;xxx), translated using the exchange rate applicable on the date that the lump sum is subsequently paid into Australia.

For the purposes of item G in the table, the amount is limited by the amount of the lump sum being paid.

Transfer 6: Fund F to your Australian Fund

As you became a member of Fund F after you became a resident of Australia, the applicable fund earnings on this lump sum will be worked out in accordance with subsection 305-75(2) of the ITAA 1997.

On the basis that your Australian Fund is a complying superannuation fund, you have chosen an amount of your applicable fund earnings worked out under section 305-75 of the ITAA 1997 to be included in the assessable income of the fund under subsection 305-80(2) of the ITAA 1997.

Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by your complying Australian Fund in 20XX. In this case the relevant exchange rate was AUD $1 = £pound;0.xxxx.

Table 6: : Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by your complying Australian Fund in 20XX. In this case the relevant exchange rate was AUD$1 = £pound;0.xxxx.

For the purposes of item F in the table, the amount reflects the applicable fund earnings (as future previously exempt fund earnings) in relation to the transfer from Fund E into Fund F, limited by the amount of the lump sum now being paid, and translated using the exchange rate applicable on the date that the lump sum is paid into Australia.

You chose on the form Completing your choice to have your Australian super fund pay tax on a foreign super transfer to include applicable fund earnings of $xxx in the Australian Fund's assessable income, being only part of the applicable fund earnings arising in respect of the lump sum.

The remaining applicable funds earnings of $xxx that has not been covered by your choice is included in your assessable income.

Transfer 7: Fund E to you

As you became a member of Fund E after you became a resident of Australia, applicable fund earnings on this lump sum will be worked out in accordance with subsection 305-75(2) of the ITAA 1997.

Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by you in 20XX. In this case the relevant exchange rate was AUD $1 = £pound;0.xxxx.

Table 7: Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt of the relevant superannuation lump sum directly by you in 20XX. In this case the relevant exchange rate was AUD$1 = £pound;0.xxxx.

For the purposes of item F in the table, the amount reflects the applicable fund earnings (as future previously exempt fund earnings) in relation to transfers 2 to 4 into Fund E reduced by the amount applied to the earlier lump sum paid by Fund E to Fund F, translated using the exchange rate applicable on the date of receipt of the superannuation lump sum directly by you.[1]

The applicable fund earnings in respect of the lump sum paid to you from Fund E is $xxx.

Transfer 8: Fund E to you

As you became a member of Fund E after you became a resident of Australia, applicable fund earnings on this lump sum will be worked out in accordance with subsection 305-75(2) of the ITAA 1997.

Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date that the lump sum is paid into Australia, in this case it is AUD $1 = £pound;0.xxxx.

Table 8: Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date that the lump sum is paid into Australia, in this case it is AUD$1 = £pound;0.xxxx.

The applicable fund earnings amount in respect of the lump sum paid to you from Fund E is $xxx.

[1] In accordance with subsection 960-50(4) of the ITAA 1997.