Transfers from overseas super funds raise their own particular issues for ECT because the transferred amount may be comprised of different components. There are specific rules about the tax treatment of each component.
The tax treatment of super benefits received from a foreign super fund is determined under Subdivision 305-B.
Sections 305-60External Link and 305-65External Link prescribe the circumstances in which a super lump sum received from a foreign fund is not assessable income and is not exempt income.
Among the conditions is the requirement that the lump sum is received within six months of the person becoming an Australian resident and relates only to a period when they were not an Australian resident or a period starting after they became an Australian resident and ending before they received the payment.
The lump sum must not exceed the amount in the fund that was vested with the person when it was received.
If the lump sum is received after the six month period or exceeds the vested amount, the payment will fall within section 305-70External Link, which requires the person to include in their assessable income so much of the lump sum as equals the applicable fund earnings.
Applicable fund earnings capture the earnings that have accrued in the super interest since Australian residency began. The remainder of the lump sum is not assessable income and is not exempt income.
The applicable fund earnings included by the person in their assessable income is reduced by an amount covered by a choice made under section 305-80External Link.
This is a choice that can be exercised if all of the lump sum is paid into a complying super fund and immediately after that payment the person no longer has a super interest in the foreign super fund.
The person may choose for all or part of the applicable fund earnings (not exceeding the amount of the lump sum) to be included in the assessable income of the fund. This choice must be in writing and comply with the regulations.
Section 295-200External Link states that the assessable income of an Australian super fund includes a transfer from a foreign super fund to the extent that the amount exceeds the amount vested in the member at the time of the transfer.
The assessable income of the fund also includes so much of an amount transferred to the fund that is specified in a choice made under section 305-80External Link.
The amount is included in the year in which the transfer happens.