Edited version of private advice

Authorisation Number: 1052358563490

Date of advice: 06 February 2025

Ruling

Subject: Foreign superannuation fund

Question 1

Are the pension savings plans you hold with Organisation A in Country X foreign superannuation funds as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer 1

Yes.

Question 2

Will any part of the lump sum payments you receive from the personal pension savings plans be applicable fund earnings as per section 305-75 of the ITAA 1997?

Answer 2

Yes.

Question 3

Will Article X of the double tax agreement (DTA) between Australia and Country X apply to any lump sum payments you receive from your personal pension plans?

Answer 3

Yes.

Question 4

Are you entitled to a foreign income tax offset for Country X tax paid on the amount of any applicable fund earnings included in assessable income?

Answer 4

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You were born in Country X and are a citizen of Country X.

On XX/XX/20XX, you became a resident of Australia for tax purposes.

On XX/XX/20XX, you became an Australian citizen.

You receive a Country X basic state pension which is paid into your Australian bank account on a regular basis. You have declared this income from your state pension in your tax returns.

You have two pension savings plans held with Organisation A in Country X. These are Pension A and Pension B.

You have not made personal contributions to these plans since your arrival in Australia.

Once retirement age is reached, the funds withdrawn from your pension plans are made as a retirement benefit and are for living expenses during retirement.

You have passed the minimum relevant retirement age to access both savings plans.

You intend to withdraw from your savings plans in the form of a lump sum.

The funds withdrawn from your pension plans cannot be reversed once they have been paid out.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 305-75

Income Tax Assessment Act 1997 section 770-10

International Agreements Act 1953

Reasons for decision

Question 1

A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as being a fund that is not an Australian superannuation fund. A superannuation fund has the meaning given by subsection 10(1) of the Superannuation Industry (Supervision) Act 1993, which requires that the fund is a 'provident, benefit, superannuation or retirement fund'.

In this case, the benefits from the Country X pension plans can only be accessed at retirement. Therefore, we are satisfied that the pension plans are foreign superannuation funds as defined in subsection 995-1(1) of the ITAA 1997.

Question 2

When you take a lump sum and you are an Australian resident for tax purposes, you will only be assessed on the applicable fund earnings. The applicable fund earnings are included in your income tax return and assessed at the marginal tax rate.

Broadly, applicable fund earnings are the earnings on your foreign super interest that have accrued since you became a resident of Australia.

The applicable fund earnings are calculated depending on whether you were an Australian resident at all times during the period to which the lump sum relates. The way to calculate your applicable fund earnings is set out at section 305-75 of the ITAA 1997.

For more information, please type QC 19303 in the search box on ato.gov.au.

Question 3

Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

In determining a taxpayer's liability to pay tax in Australia it is also necessary to consider the operation of any applicable tax treaty contained in the International Tax Agreements Act 1953.

Section 4 of the Agreements Act incorporates the Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that all three acts are read as one. The Agreements Act overrides both the ITAA 1936 and the ITAA 1997 where there are inconsistent provisions (except in some limited situations).

The Agreement between Australia and Country X operates to avoid the double taxation of residents of Australia and residents of Country X.

Article X of theCountry X Convention deals with 'other income' not covered by any other Article of the Convention. This includes lump sums paid from foreign superannuation funds, pension plans or investment funds.

In your case, Article X provides that items of income beneficially owned by a resident of Australia shall be taxable only in Australia. However, items of income of a resident of Australia from sources in Country X may also be taxed in the Country X.

Therefore, both Australia and Country X may tax any lump sum amount paid to you from your Country X pension plans.

Question 4

Section 770-10 of the ITAA 1997 provides that you are entitled to claim a foreign income tax offset for foreign income tax paid in respect of an amount that is included in your assessable income.

Section 770-15 of the ITAA 1997 specifies that foreign income tax means tax that is imposed under a law other than an Australian law and is

•                tax on income

•                tax on profits of gains, whether of an income or capital nature, or

•                any other tax that is subject to an agreement covered by the International Tax Agreements Act 1953

Article X of the Country X Convention deals with the elimination of double taxation.

Article X of the Country X Convention provides that subject to the provisions of the laws of Australia from time to time in force which relate to the allowance of a credit against Australian tax of tax paid in a country outside of Australia. Country X tax paid under the laws of Country X and in accordance with this Convention, whether directly or by deduction, in respect of income derived by a person who is a resident of Australia from sources in Country X shall be allowed as a credit against Australian tax payable in respect of that income.

Therefore, you can claim a foreign income tax offset (FITO) for Country X tax paid on the amount of applicable fund earnings included in your assessable income.