Edited version of private advice

Authorisation Number: 1052067483994

Date of advice: 8 March 2023

Ruling

Subject: Lump sum payment from a foreign fund

Question 1

Is any part of the payment from the Plan applicable fund earnings under section 305-75 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes

Question 2

Is any part of a future payment from the Plan applicable fund earnings under section 305-75 of the ITAA 1997?

Answer 2

The Commissioner declines to rule

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

In the 20XX-20XX income year, you became an Australian tax resident.

You are a member of an overseas plan (the Plan).

A statement shows the Plan value just before you became an Australian tax resident.

In the 20XX-XX income year a payment was made to you from the Plan.

A statement shows the Plan value just before the payment made in the 20XX-XX income year.

You have provided the latest statement showing the Plan value.

Other than the payment in the 20XX-XX income year, you have not received any amounts in cash from the Plan or rolled over any amounts from the Plan into an Australian super fund.

No contributions have been made by you or your employer into the Plan since you became an Australian resident.

No amounts have been transferred into the Plan from any other foreign fund since you became an Australian resident.

You intend to rollover an amount from the Plan into an Australian complying superannuation fund in the future.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 305-60

Income Tax Assessment Act 1997 section 305-70

Income Tax Assessment Act 1997 section 305-75

Income Tax Assessment Act 1997 section 960-50

Taxation Administration Act 1953 section 357-110

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

Question 1

Summary

The 'applicable fund earnings' amount in respect of the lump sum payment transferred from the Plan for the 20XX-XX income year should be included in your assessable income for the 20XX-XX income year.

Detailed reasoning

Subdivision 305-B of the ITAA 1997 deals with superannuation benefits paid from foreign superannuation funds.

Where a lump sum paid from a foreign superannuation fund is received within six months after Australian residency and relates only to a period of non-residency; or to a period starting after the residency and ending before the receipt of payment, the lump sum is not assessable income and is not exempt income. That is, it is tax-free under section 305-60 of the ITAA 1997.

Where a lump sum paid from a foreign superannuation fund is received more than six months after Australian residency, section 305-70 of the ITAA 1997 applies to include any applicable fund earnings in assessable income.

You became a resident of Australia for tax purposes. As the payment was made more than six months after you became an Australian resident, section 305-70 of the ITAA 1997 applies to the payment so that an amount of applicable fund earnings is included in your assessable income for the 20XX-XX income year.

Applicable fund earnings

The 'applicable fund earnings' amount is worked out under section 305-75 of the ITAA 1997. As you became an Australian resident after the start of the period to which the lump sum relates, the applicable fund earnings are worked out in accordance with subsection 305-75(3) which states:

If you become an Australian resident after the start of 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 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 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).

The effect of section 305-75 of the ITAA 1997 is that you are assessed only on the income earned on your benefits in the Plan during the relevant period. Earnings, contribution and transfers made into the paying fund during periods of non-residency do not form part of the taxable amount when the benefit is paid.

Foreign currency conversion

Subsection 960-50(1) of the ITAA 1997 states that an amount in a foreign currency is to be translated into Australian dollars. The applicable fund earnings is the result of a calculation from two other amounts and subsection 960-50(4) states that when applying section 960-50 to amounts that are elements in the calculation of another amount you need to:

•           first, translate any amounts that are elements in the calculation of other amounts (except special accrual amounts); and

•           then, calculate the other amounts.

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, the Commissioner considered the foreign currency translation rules in relation to lump sum transfers from foreign superannuation funds. The Commissioner determined 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.

For the purposes of section 305-70 of the ITAA 1997, the 'applicable fund earnings' amount in respect of the lump sum received from the Plan should be calculated by deducting the Australian dollar equivalent of the amount vested in you just before the Residency Date from the amount vested in you on the day of receipt. Both amounts should be translated using the exchange rate applicable on the day of receipt.

Calculation of the applicable fund earnings amount

The calculation of the applicable fund earnings for you is shown in the table below with reference to the facts of the case. Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the day of receipt by you. In this case it is A$1 = £pound;0.xxx

Table 1: Calculation of the applicable fund earnings amount

Therefore, the 'applicable fund earnings' amount in respect of the lump sum payment transferred from the Plan for the 20XX-XX income year is $xxx.

However, subsection 305-70(2) of the ITAA 1997 states that only so much of the lump sum as equals the applicable fund earnings is included in assessable income. Therefore, the assessable income will be limited to the amount of the lump sum in any case where the lump sum is less than the applicable fund earnings.

Accordingly, the amount included as assessable income for this lump sum payment is £pound;xxx which, using the rate of AUD $1 = £pound;0.xxx, converts to $xxx. This should be included in your assessable income for the 20XX-XX income year.

Question 2

Section 357-110 of schedule 1 to the Taxation Administration Act 1953 provides that a private ruling does not have to be given where the Commissioner considers that the correctness of the private ruling would depend on which assumptions were made about a future event or matter.

You are requesting a ruling in respect of events that will occur at an unknown time. It is unknown when the final payment will be made or the amount to be made from the Plan.

In this case the Commissioner considers that the correctness of the private ruling would depend on assumptions made about a future event. The Commissioner declines to rule as the facts of your case are not known with reasonable certainty.