Private ruling: Lump sum payment from foreign pension fund
Published: September 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the lump sum payment from your foreign pension fund non-assessable, non-exempt income under section 305-60 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: Between the relevant income years you worked for an organisation (the Employer). You were based overseas during your employment period. You became a permanent resident of Australia during the 2013-14 income year. During your employment period with the Employer you were a member of a foreign pension fund (Foreign Fund). You provided documentation relating to the Foreign Fund. Upon your separation from the Employer, the Foreign Fund offered you the option of deferring your retirement benefit or accepting a lump sum payment. You selected the withdrawal settlement The lump sum is a one-time payment that relinquishes all rights to a further benefit from the fund. During the 2013-14 income year X was paid to you by the Foreign Fund and details of its composition were provided. You no longer hold an interest in the Foreign Fund.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 295-95(2) | Income Tax Assessment Act 1997 Section 305-60 | Income Tax Assessment Act 1997 Subsection 305-60(1) | Income Tax Assessment Act 1997 Subsection 995-1(1) | Superannuation Industry (Supervision) Act 1993 Section 10 | Superannuation Industry (Supervision) Act 1993 Section 19 | Superannuation Industry (Supervision) Act 1993 Section 62

Reasons for decision: Summary: The payment of X you received from the Foreign Fund is non-assessable, non-exempt income. | Detailed Reasoning - Lump sum payments from foreign superannuation funds: Under section 305-60 of the Income Tax Assessment Act 1997 (ITAA 1997), a lump sum payment from a foreign superannuation fund is non-assessable, non-exempt income if: (a) you receive it within 6 months after you become an Australian resident; and (b) it relates only to a period: (i) when you were not an Australia resident; or (ii) starting after you became an Australian resident and ending before you receive the payment; and (c) It does not exceed the amount in the fund that was vested in you when you received the payment. Before determining whether section 305-60 of the ITAA 1997 applies, it is necessary to ascertain whether the payment is being made from a foreign superannuation fund. | Detailed Reasoning - Foreign superannuation fund: A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as follows: (a) a superannuation fund is a foreign superannuation fund at a time if the fund is not an Australian superannuation fund at that time; and (b) a superannuation fund is a foreign superannuation fund for an income year if the fund is not an Australian superannuation fund for the income year. Under the definition of Australian superannuation fund in subsection 295-95(2) of the ITAA 1997 a superannuation fund that is established outside of Australia and has its central management and control outside of Australia would qualify as a foreign superannuation fund. The fact that some of its members may be Australian residents would not necessarily alter this. Subsection 995-1(1) of the ITAA 1997 defines a superannuation fund as having the same meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), which requires that the fund is a provident, benefit, superannuation or retirement fund. | Detailed Reasoning - Provident, benefit, superannuation or retirement fund: The issue of what constitutes a provident, benefit, superannuation or retirement fund was discussed by the Full Bench of the High Court in Mahony v. Federal Commissioner of Taxation (1967) 41 ALJR 232; (1967) 14 ATD 519 ( Mahony ). In that case, Justice Kitto's judgement indicated that a fund does not satisfy any of the three provisions, that is, 'provident, benefit or superannuation fund', if there exist provisions for the payment of benefits 'for any other reason whatsoever'. In other words, though a fund may contain provisions for retirement purposes, it could not be accepted as a superannuation fund if it contained provisions that benefits could be paid in circumstances other than those relating to retirement. In section 62 of the SIS Act, a regulated superannuation fund must be 'maintained solely' for the 'core purposes' of providing benefits to a member when the events occur: • on or after retirement from gainful employment; or • attaining a prescribed age; and • on the member's death. (this may require the benefits being passed on to a member's dependants or legal representative). Notwithstanding the SIS Act applies only to 'regulated superannuation funds' (as defined in section 19 of the SIS Act), and foreign superannuation funds do not qualify as regulated superannuation funds as they are established and operate outside Australia, the Commissioner views the SIS Act (and the SIS Regulations) as providing guidance as to what 'benefit' or 'specific future purpose' a superannuation fund should provide. Based on the rules of the Foreign Fund, benefits are only paid to members on retirement and therefore the fund would meet the definition of superannuation fund. Therefore, as the payer of the lump sum was established outside of Australia and has its central management and control outside of Australia, the Commissioner accepts that the lump sum payment was made from a foreign superannuation fund as defined in subsection 995-1(1) of the ITAA 1997. The remaining requirements under section 305-60 of the ITAA 1997 have been satisfied as: • You received the payment within six months of becoming an Australian resident; • The payment relates to a period where you were a non-resident; and • The payment does not exceed the amount that was vested in you when the payment was made. Based on the above, the payment of X you received from the Foreign Fund is non-assessable, non-exempt income. The amount is therefore not required to be included in your income tax return for the 2013-14 income year.