Private ruling: Lum sum transfer from foreign fund
Date of advice: 24 November 2022
Published: 23 January 2023
Ruling period: Income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: A3: No.

Relevant facts and circumstances: The Taxpayer and the spouse immigrated to Australia from the Country A. The Taxpayer became a resident of Australia for income tax purposes in the 20XX-XX income year. The Taxpayer's spouse (the Deceased) passed away in late 20XX. The Deceased was a member of a Country A Pension Scheme (Fund A). Fund A is a statutory pension scheme and a registered pension scheme for the purposes of the Finance Act (UK) 2004 in the UK. The Regulations contain rules relevant to the operation of Fund A. Fund A is a defined benefits scheme. There were no contributions or foreign fund transfers into Fund A since the Taxpayer became a resident of Australia. In the 20XX-XX income year, the Taxpayer received a 'Defined Lump sum on death benefit' (the lump sum) from Fund A. In accordance with the Regulations the Taxpayer receives an adult dependant's pension monthly. In accordance with the Regulations where a member dies and has dependent children, a child allowance or children's pension may be payable to a dependent child. The Taxpayer's child receives a monthly pension. Assumptions Fund A is a scheme for the payment of benefits in the nature of superannuation upon retirement or death.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 27H | Income Tax Assessment Act 1936 Subparagraph 102AE(2)(b)(v) | Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Subdivision 305-B | Income Tax Assessment Act 1997 Section 305-75 All references are to the ITAA 1997 unless otherwise indicated.

Reasons for decision: Summary: A portion of the lump sum payment received from Fund A must be included as 'applicable fund earnings' in assessable income for the 20XX-XX income year. The adult dependants pension received by the Taxpayer is assessable income and must be declared as assessable income for the 20XX-XX income year. The children's pension is not assessable income of the Taxpayer. | Detailed Reasoning - Detailed reasoning: Subdivision 305-B of the ITAA 1997 applies to superannuation benefits received from foreign superannuation funds and schemes for the payment of benefits in the nature of superannuation upon retirement or death. If an individual taxpayer receives a lump sum from a foreign superannuation fund more than six months after becoming an Australian resident, the taxpayer's assessable income includes any growth (applicable fund earnings) earned on the foreign superannuation interest while the taxpayer was an Australian resident. The effect of section 305-75 of the ITAA 1997 is that the individual taxpayer is only assessed on the income they earned on their benefits in the foreign fund while they were an Australian resident. Earnings during periods of non-residency, contributions and transfers into the foreign fund are not taxable when the overseas benefit is paid. Subdivision 305-B of the ITAA 1997 also applies to a lump sum death benefit paid by a foreign superannuation fund to an Australian resident. For the purpose of calculating applicable fund earnings in relation to a death benefit, the deceased fund member's fund history is inherited by the death benefit recipient, but it is the recipient's residence history that is relevant. In this case, Fund A is a foreign superannuation fund. The Taxpayer became an Australian resident after the start of the period to which the lump sum relates. The Taxpayer remained an Australian resident at all times until the lump sum was paid. Therefore, the applicable fund earnings is calculated in accordance with subsection 305-75(3) of the ITAA 1997. The amount of applicable fund earnings in relation to the lump sum payment received from Fund A has been calculated in accordance with the formula in subsection 305-75(3) of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: Section 27H of the ITAA 1936 operates to specifically include in assessable income, the amount of any pension derived by a taxpayer during a year of income reduced by the annual deductible amount. The deductible amount is considered to be a return of part of the after tax contributions that were made towards the purchase price of the pension and is calculated based on the undeducted purchase price of that pension. In this case, the adult dependant's pension payable to the Taxpayer is assessable income in accordance with Section 27H of the ITAA 1936. As the contributions were pre-tax amounts there is no deductible amount. | Detailed Reasoning - Detailed reasoning: The children's pension payable to an eligible dependent child is not assessable income of the Taxpayer. It is the income of the child.

Question.1: Is any part of the lump sum payment received from Fund A assessable as applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997) ? | Question.2: Is the adult dependant's pension assessable in accordance with section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)? | Question.3: Is the children's pension assessable in accordance with section 27H of the ITAA 1936?