Private ruling: Payment from a foreign superannuation fund
Date of advice: 20 May 2019
Published: July 2019
Ruling period: 1 July 20XX to 30 June 20XX

Ruling: Q1: Where the taxpayer commences a Flexi-access drawdown from the Country A pension scheme, will an interim and final payment from the scheme be taxed in Australia as a lump sum payment pursuant to section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997) or as pension income under section 27H of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: The payments will be taxed as lump sums in accordance with Subdivision 305-B of the ITAA 1997.

Relevant facts and circumstances: You arrived in Australia on XX/XX/20XX, and became a resident of Australia for tax purposes on this date. You currently have benefits in a Country A pension fund. You are now proposing to withdraw the full amount in the Country A pension fund as follows: · An amount as an uncrystallised fund lump sum (UFPLS) · the balance to be used to commence a UK Flexi-access drawdown (FAD), with an interim FAD payment and a final FAD amount payable within 6 months. The FAD payments are characterised as a form of pension for Country A tax purposes.

Relevant legislative provisions: Income Tax Assessment Act 1997 S ubdivision 305-B | Income Tax Assessment Act 1997 section 305-70 | Income Tax Assessment Act 1997 section 307-65 | Income Tax Assessment Act 1936 section 27H | Superannuation Industry (Supervision) Regulations 1994 subregulation 1.06(1) | Superannuation Industry (Supervision) Regulations 1994 subregulation 1.06(9A) Case law | Tubemakers of Australia Ltd v Federal Commissioner of Taxation [1993] FCA 175

Reasons for decision: Detailed Reasoning - Detailed reasoning: A superannuation lump sum is a superannuation benefit that is not a superannuation income stream benefit pursuant to section 307-65 of the ITAA 1997. The phrase 'income stream' was considered in the case of Tubemakers of Australia Ltd v Federal Commissioner of Taxation [1993] FCA 175 (Tubemakers case). In light of the Tubemakers case, the Commissioner considers the phrase 'income stream' refers to a series of periodic (including a series of annual) payments made from a member's interest in the superannuation fund over an identifiable period of time. A liability to make a single payment for one year would not constitute an income stream. The series of periodic payments envisaged in the Tubemakers case would also need to satisfy the requirements of subregulation 1.06(1) and by extension subregulation 1.06(9A) of the Superannuation Industry (Supervision) Regulations 1994 (SISR 1994). Subregulation 1.06(9A) of the SISR requires amongst other things that the payment of the pension is made at least annually. Whilst the interim and final FAD payments are considered pensions by the Country A authority, such a classification cannot be sustained under Australian law. The FAD payments in question do not constitute a series of periodic payments over an identifiable period and are confined to the one year. The payments are akin to a full commutation of a pension entitlement. For this reason the payments are considered lump sum payments and should be taxed accordingly under section 305-70 of the ITAA 1997. The UFPLS amount is considered to be a lump sum payment by the Country A authority. It is accepted therefore that the UFPLS would also be taxable in Australia as a lump sum under section 305-70 of the ITAA 1997. When a person receives a lump sum from a foreign superannuation fund more than six months after they became an Australian resident, the growth they earned on their foreign superannuation during the period when they were a resident of Australia is included in their assessable income as 'applicable fund earnings' under section 305-70 of the ITAA 1997. | Detailed Reasoning - Relevant legislative provisions: Income Tax Assessment Act 1997 S ubdivision 305-B Income Tax Assessment Act 1997 section 305-70 Income Tax Assessment Act 1997 section 307-65 Income Tax Assessment Act 1936 section 27H Superannuation Industry (Supervision) Regulations 1994 subregulation 1.06(1) Superannuation Industry (Supervision) Regulations 1994 subregulation 1.06(9A) | Detailed Reasoning - Case law: Tubemakers of Australia Ltd v Federal Commissioner of Taxation [1993] FCA 175