Private ruling: Foreign superannuation fund and non-concessional contributions
Date of advice: 13 June 2016
Published: October 2017

Ruling: Q1: Is the superannuation benefit transferred from a foreign superannuation fund to an Australian self-managed superannuation fund included as a non-concessional contribution and counted towards the non-concessional contributions cap? Advice Yes, to the extent that it is not included in the assessable income of the Australian superannuation fund.

Relevant facts and circumstances: Your advice is based on the facts stated in the description of the scheme that is set out below. If your circumstances are significantly different from these facts, this advice has no effect and you cannot rely on it. The fact sheet has more information about relying on ATO advice. The Taxpayer arrived in Australia from Country A in the 2004-05 income year and has been an Australian resident for tax purposes since that date (the Residency date) The Taxpayer intends to transfer approximately $540,000 before the 30 June 2017 from their Country A superannuation fund (Fund 1) to their Australian self-managed super fund (SMSF) for the basis of consolidating their pension benefits into Australia. After the transfer into their SMSF in Australia, the Taxpayer will have no remaining interest in Fund 1. The Taxpayer has calculated the applicable funds earning of the initial transfer of $540,000 to be approximately $480,000 and intends to make an election under section 305-80 of the ITAA 1997 for the applicable funds earning to be treated as the SMSFs assessable income. After the transfer, the Taxpayer intends to transfer approximately $480,000 from another Country A superannuation fund (Fund 2) into their SMSF in Australia before the 30 June 2017. The Taxpayer advises that for this particular transfer there is no applicable funds earning amount. The taxpayer’s is below the age of 65.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 292-80 | Income Tax Assessment Act 1997 subsection 292-85(2) | Income Tax Assessment Act 1997 Subsections 292-85(3) | Income Tax Assessment Act 1997 Section 292-90 | Income Tax Assessment Act 1997 Section 292-410 | Income Tax Assessment Act 1997 Sections 305-70 | Income Tax Assessment Act 1997 Subsections 305-70(1) | Income Tax Assessment Act 1997 Section 305-75 | Income Tax Assessment Act 1997 Subsection 305-75(2) | Income Tax Assessment Act 1997 Subsection 305-75(3) | Income Tax Assessment Act 1997 Section 305-80 | Income Tax Assessment Act 1997 Subsection 305-80(1) | Income Tax Assessment Act 1997 Subsection 305-80(2) | Income Tax Assessment Act 1997 Subsection 305-80(3) | Superannuation (Excess Concessional Contributions Tax) Act 2007 Sections 4 | Superannuation (Excess Concessional Contributions Tax) Act 2007 Sections 5 | Superannuation (Excess Non- concessional Contributions Tax) Act 2007 Sections 4 | Superannuation (Excess Non- concessional Contributions Tax) Act 2007 Sections 5

Reasons for decision: Summary: Non-concessional contributions include post-tax personal contributions not claimed as a tax deduction, spouse contributions and transfers from foreign superannuation funds to the extent that they are not included in the Australian superannuation fund’s assessable income. If they exceed the non-concessional contributions cap of $180,000 (for the 2016-17 income year) they are taxed at the rate of 47%. A portion of the lump sum payment made by a foreign fund to an Australian superannuation fund is assessable as 'applicable fund earnings’. The applicable fund earnings represent the increase or growth in the foreign fund during the period you are a resident of Australia. The applicable fund earnings are subject to tax at your marginal rates. However, you may be able to elect to have the applicable fund earnings treated as assessable income of the Australian superannuation fund. If you do, the amount of the applicable fund earnings will not be treated as concessional contribution nor will it be treated as non-concessional contribution. | Detailed Reasoning - Lump sum payments transferred from foreign superannuation funds: Section 305-70 provides that an Australian resident taxpayer who receives a lump sum from a foreign superannuation fund more than six months after becoming an Australian resident must include the 'applicable fund earnings' of the lump sum (if any) in their assessable income. In accordance with subsection 305-70(2) of the ITAA 1997, so much of the lump sum as equals the applicable fund earnings, as worked out under section 305-75 of the ITAA 1997 is included in the assessable income of a person. The applicable fund earnings amount is subject to tax at the person’s marginal tax rate. The remainder of the lump sum payment is not assessable income and is not exempt income. The applicable fund earnings amount is worked out under either subsection 305-75(2) or (3) of the ITAA 1997. Subsection 305-75(2) applies where the person was an Australian resident at all times during the period to which the lump sum relates. Subsection 305-75(3) applies where the person was not an Australian resident at all times during the period to which the lump sum relates. | Detailed Reasoning - Election under section 305-80 of the ITAA 1997: From 1 July 2007, a taxpayer who is eligible to transfer their overseas superannuation benefits directly to an Australian complying superannuation fund more than six months after becoming a resident, may be able to elect under subsection 305-80(1) of the ITAA 1997 to have part of the payment, otherwise assessable under section 305-70, treated as assessable income of the Australian superannuation fund. To qualify, the person must, immediately after the relevant payment is made, no longer have an interest in the paying fund. Under subsection 305-80(3) of the ITAA 1997, the election must be in writing, specify the amount to be covered by the election and comply with any requirements specified in the Income Tax Regulations. Accordingly, the taxpayer is allowed to choose for all or part of the applicable funds earnings worked out under section 305-75 (but not exceeding the amount of the lump sum) to be included in the assessable income of the complying superannuation fund, that is the SMSF in Australia. Any amount that is not covered by the election , or the part of the payment that is not otherwise assessable under section 305-70 of the ITAA 1997, is included as assessable income of the taxpayer and taxed at the person’s marginal rate of tax. | Detailed Reasoning - Non-concessional contributions: Non- concessional contributions made to a complying superannuation fund will be subject to an annual cap (subsection 292-85(2) of the ITAA 1997). For the 2016-17 income year onwards the annual cap is $180,000. According to section 292-90 of ITAA 1997, non-concessional contributions include: ● Personal contributions for which an income tax deduction is not claimed ● Contributions a person’s spouse makes to their superannuation fund account and ● Transfers from foreign superannuation funds (excluding amounts included in the fund’s assessable income). As noted above, the amount of the applicable funds earnings in relation to the transfer of benefits from a foreign superannuation fund to an Australian superannuation fund that is covered by an election under subsection 305-802) of the ITAA 1997 is treated as assessable income of the Australia superannuation fund. Therefore, this amount will not be treated as a non-concessional contribution to the Australian superannuation fund and will not count towards the taxpayer’s non-concessional contributions cap for the relevant year. The remainder of the superannuation benefit transferred from the foreign superannuation fund will be treated as a non-concessional contribution to the Australian superannuation fund and will count towards the taxpayer’s non-concessional contributions cap for the relevant year. This will include the amount, if any, of the applicable fund earnings not covered by the election under subsection 305-80(2) of the ITAA 1997. A person will be taxed on non-concessional contributions over the cap at the rate of 47% (section 292-80 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Non-concessional Contributions tax). The person will be required to ask their superannuation fund to release an amount that is equal to the tax liability (section 292-410 of the ITAA 1997). As a concession, to accommodate larger contributions, persons under age 65 in an income year are able to bring forward future entitlements to two years’ worth of non-concessional contributions. This means a person under age 65 will be able to contribute non-concessional contributions totalling $540,000 over three income years without exceeding their non-concessional contributions cap (subsections 292-85(3) and (4) of the ITAA 1997). The bring forward will be triggered automatically when contributions in excess of the annual non-concessional contributions cap are made in an income year by a person who is under age 65 at any time in the year where a bring forward has not already commenced (subsection 292-85(3) of the ITAA 1997). Where a bring forward has been triggered, the two future years' entitlements are not indexed. | Detailed Reasoning - Conclusion: With respect to the first superannuation benefit transferred from the foreign superannuation fund to a complying Australian superannuation fund, the taxpayer is eligible to elect for the applicable fund earnings to be included in the assessable income of the Australian superannuation fund as per section 305-80 of the ITAA 1997. The amount that is covered by the election made under section 305-80 of the ITAA is not classified as either concessional or non-concessional contributions and therefore is not counted towards either cap. The transfer amount that is not assessable income of the Australian superannuation fund (that is, not covered by the election made under section 305-80 of the ITAA 1997) is classified as non-concessional contribution and will be counted against the non-concessional contribution cap of $180,000 for the 2016-17 income year. Additionally, as the taxpayer is under the age of 65, the 'bring forward provision’ will be triggered automatically if your non-concessional contributions exceed $180,000. If this occurs, then you should ensure that the total of your non-concessional contributions for the 2016-17 do not exceed $540,000. From 1 July 2017, the non-concessional contributions cap is reduced to $100,000 for members 65 or over but under 75. Members under 65 years of age will have the option of contributing up to $300,000 over a three-year period for members depending on their total superannuation balance.

This advice applies for the following period: Income year ending 30 June 2017