Edited version of private advice

Authorisation Number: 1052226878306

Date of advice: 13 March 2024

Ruling

Subject:Foreign superannuation lump sum benefit.

Question:

Is any part of the lump sum payment from the Country A 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:

1 July 20YY to 30 June 20YY

Relevant facts and circumstances

You became a resident of Australia for taxation purposes in 20YY.

While living in Country A you became a member of the Country A Fund.

You received a lump sum payment from the Fund during the 20YY income year. The RBA exchange rate was AUD $1 = XXX

You do not know the value of the lump sum payment at residency date. Using the Country A Consumer Price Index, the estimated value of the lump sum on the day before your residency date, was XX.

There have been no contributions into the Fund since you became an Australian resident for tax purposes.

There have been no transfers into the Fund since you became an Australian resident for tax purposes.

The Fund is a Country A registered superannuation scheme. Benefits cannot be accessed before 55 unless under exceptional circumstances such as ill health or death.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 305-70

Income Tax Assessment Act 1997 Section 305-75

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, the growth they earned 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 under either subsection 305-75(2) or (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.

In this case, the fund to which the lump sum relates, was established before you became an Australian resident. As you were not an Australian resident at all times during the period, subsection 305-75(3) of the ITAA 1997 will apply.

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, 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 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 only the income earned in respect of the foreign superannuation fund since Australian residency, less any contributions made in that period, is assessed. Further, any amounts representative of earnings during periods of non-residency, and transfers into the paying fund do not form part of the taxable amount when the lump sum is paid.

Foreign currency conversion

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). 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. This will be the time when you transfer your benefits from your foreign funds to Australia.

Calculation of your applicable fund earnings

As you became a member of the Fund before becoming a resident of Australia, the growth in the Fund will be worked out in accordance with subsection 305-75(3) of the ITAA 1997

Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt. In this case the relevant exchange rate was AUD $1 = XX

The applicable fund earnings in respect of the lump sum paid to you from the Fund is $xxx. You should include this amount in your assessable income for the 20YY-YY income year.