Edited version of private advice

Authorisation Number: 1052311675660

Date of advice: 1 October 2024

Ruling

Subject: Foreign superannuation fund - lump sum payment

Question

Is any part of a lump sum payment to you from a foreign super fund applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes, the applicable fund earnings are $X.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You became a resident of Australia for taxation purposes in early 20XX (residency date).

While living in a Foreign Country, you became a member of a foreign Pension Scheme (the Fund).

You were only able to access the superannuation benefits from the foreign fund upon retirement.

You provided the following document to support the value of the policy vested in you on the date before the start of your Australian residency:

Statement from the Fund issued in mid 20XX confirming that the estimated value of the lump sum benefit attributable to this policy vested by you just before the residency date was $XXXX.

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

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

You provided evidence that the Fund paid a lump sum payment for $XXXX in late 20XX.

The Australian Reserve Bank daily exchange rate on the date the fund paid the lump sum was AUD $1 = Country A equivalent 0.XXXX.

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 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)

Superannuation Industry (Supervision) Act 1993 section 62

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

Detailed reasoning

Applicable fund earnings

1.      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.

2.      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.

3.      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.

4.      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).

Foreign currency conversion

5.      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).

6.      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).

7.      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.

Transfer to Australia

8.      As you became a member of the foreign fund 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.

9.      Any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt, in this case it is AUD $1 = Country A equivalent 0.XXXX in late 20XX.

Table 1: Foreign currency translation

10.   The 'applicable fund earnings' amount in respect of the lump sum payment transferred from the Fund that should be included in your assessable income for the 20XX-XX income year is $XXXX.