Private ruling: Lump sum payments from multiple foreign superannuation funds
Date of advice: 11 April 2019
Published: June 2019
Ruling period: Income year ended 30 June 2018

Ruling: Q1: Is any part of the lump sum benefits paid from your foreign superannuation funds assessable as applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: You became an Australian resident during the 19XX year of income. Prior to arriving in Australia you were employed overseas and became a member of a foreign Pension Scheme #1. During the 2018 year of income you transferred all benefits in the foreign Pension Scheme #1 to the foreign Pension Scheme #2. During the 2018 year of income you transferred some of the benefits in the foreign Pension Scheme #2 to foreign Pension Scheme #3. You then transferred all the benefits from foreign Pension Scheme #3 to your Australian SMSF. During the 2018 year of income you transferred some of the benefits in the foreign Pension Scheme #2 to foreign Pension Scheme #4. You then transferred all the benefits from foreign Pension Scheme #4 to your Australian SMSF. You have used the Bank exchange rates to convert the relevant amount (net of fees) into Australian dollars at the date of transfer to your SMSF. Foreign Pension Schemes #1, #2, #3 and #4 are Pension Schemes, established in and controlled by the authorities in the Foreign Country. The trust deeds for your foreign Pension Schemes do not allow a member to withdraw benefits from the fund before they reach retirement age and that benefits can only be withdrawn for retirement related purposes. There have been no other transfers or pension amalgamations made from other foreign pension funds to the Pension Schemes since you departed the Foreign Country and became an Australian resident.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 305-70 | Income Tax Assessment Act 1997 section 305-75 | Income Tax Assessment Act 1997 section 305-80 | Income Tax Assessment Act 1997 section 960-50 | Income Tax Assessment Act 1997 section 995-1 | Superannuation Industry (Supervision) Act 1993 subsection 10(1) We followed these ATO view documents | ATO Interpretative Decision ATO ID 2015/7: Foreign currency translation rules in working out 'applicable fund earnings' under section 305-75 of the ITAA 1997

Reasons for decision: Detailed Reasoning - Lump sum payments transferred from foreign superannuation funds: 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. A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as being a fund that is not an Australian superannuation fund. A superannuation fund has the meaning given by subsection 10(1) of the Superannuation Industry (Supervision) Act 1993 , which requires that the fund is a ‘provident, benefit, superannuation or retirement fund’. In this case, the benefits from your foreign Pension Schemes cannot be accessed other than at retirement, death or incapacity and therefore meet the definition of foreign superannuation funds. | Detailed Reasoning - Applicable fund earnings: You became a resident of Australia for tax purposes during the 19XX year of income. During the 2018 year of income all your benefits were transferred from the foreign Pension Scheme #1 to foreign Pension Scheme #2. A portion of the benefits in foreign Pension Scheme #2 were then transferred to foreign Pension Scheme #3 and foreign Pension Scheme #4. All benefits in foreign Pension Schemes #3 and #4 were then subsequently paid to your SMSF in two separate transfers during the 2018 year of income. As the lump sum transfers were more than six months after you became an Australian resident, 'applicable fund earnings' will apply. 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. Subsection 305-75(3) of the ITAA 1997 states: If you become an Australian resident after the start of the period to which the lump sum relates, the amount of your applicable fund earnings is the amount (not less than zero) worked out as follows: a) work out the total of the following amounts: i. The amount in the fund that was vested in you just before the day (the start day ) you first became an Australian resident during the period; ii. the part of the payment that is attributable to contributions to the fund made by or in respect of you during the remainder of the period; iii. the part of the payment (if any) that is attributable to amounts transferred into the fund from any other foreign superannuation fund during the period; b) subtract that total amount from the amount in the fund that was vested in you when the lump sum was paid (before any deduction for foreign tax); c) multiply the resulting amount by the proportion of the total days during the period when you were an Australian resident; d) add the total of all previously exempt fund earnings (if any) covered by subsections (5) and (6). ‘Previously exempt fund earnings’ are any amounts in the lump sum paid to Australia by a foreign superannuation fund which had previously been transferred into that fund from a second foreign superannuation fund. They are included in applicable fund earnings to the extent that they would have been included in assessable income under s 305-70(2) of the ITAA 1997 if they had originally been paid to Australia instead of being transferred to the second foreign superannuation fund. The effect of section 305-75 of the ITAA 1997 is that only the income earned in respect of the foreign superannuation fund since Australian residency, less any contributions made in that period, is assessed. Further, any amounts representative of earnings during periods of non-residency, and transfers into the paying fund do not form part of the taxable amount when the lump sum is paid. Subsection 305-75(4) of the ITAA 1997 is relevant for calculating the applicable fund earnings where multiple lump sums have been paid to you from the same foreign fund. It states that: If the lump sum is not the first lump sum from the fund you have received to which this section applies, for subsections (2) and (3) the start day is the day after you received the most recent such lump sum. In this case, your SMSF received lump sum payments from two separate foreign superannuation funds, in foreign Pension Scheme #3 and foreign Pension Scheme #4. The two lump sum payments your SMSF received are not from the same superannuation fund, subsequently subsection 305-75(4) of the ITAA 1997 does not apply. Subsection 305-75(4) of the ITAA 1997 does not apply to the start day for the roll-over from foreign Pension Scheme #2 to foreign Pension Scheme #4 as the lump sum that occurred at this time was not received by you, but rather by another foreign superannuation fund. | Detailed Reasoning - Foreign currency conversion: Subsection 960-50(1) of the ITAA 1997 states that an amount in a foreign currency is to be translated into Australian dollars. The applicable fund earnings is the result of a calculation from two other amounts and subsection 960-50(4) of the ITAA 1997 states that when applying section 960-50 of the ITAA 1997 to amounts that are elements in the calculation of another amount you need to: ● first, translate any amounts that are elements in the calculation of other amounts (except special accrual amounts); and ● then, calculate the other amounts. In ATO Interpretative Decision ATO ID 2015/7: Foreign currency translation rules in working out 'applicable fund earnings' under section 305-75 of the ITAA 1997 , the Commissioner considered the foreign currency translation rules in relation to lump sum transfers from foreign superannuation funds. The Commissioner, in considering Item 11A of the table in subsection 960-50(6) of the ITAA 1997, determined that the exchange rate at which it is reasonable to translate amounts used in the method statements set out in subsections 305-75(2) and 305-75(3) into Australian currency is the exchange rate applicable at the time of receipt of the relevant superannuation lump sum. For the transfers made from foreign Pension Scheme #3 and foreign Pension Scheme #4 to your SMSF, the exchange rate applicable to the transfers is the date on which the lump sums were made into Australia. Previously exempt fund earnings – First transfer: foreign Pension Scheme #1 to foreign Pension Scheme #2 As you became a member of the foreign Pension Scheme #1 before you became a resident of Australia, the growth will be worked out in accordance with subsection 305-75(3) of the ITAA 1997. Since the foreign Pension Scheme #1 and foreign Pension Scheme #2 are both foreign superannuation funds, the growth amounts are not assessable as per subsection 305-70(4) of the ITAA 1997. However the growth will be classified as previously exempt fund earnings according to subsections 305-75(5) and 305-75(6) for the purpose of future applicable fund earning calculations. De | Detailed Reasoning - A: Amount in the foreign Pension Scheme #1 vested in the taxpayer on the day just before the Residency Date xxxx | Detailed Reasoning - B: Part of the payment attributable to contributions to foreign Pension Scheme during the remainder of the period 0.00 | Detailed Reasoning - C: Part of the payment attributable to amounts transferred into foreign Pension Scheme from any other foreign funds superannuation funds during the remainder of the period 0.00 | Detailed Reasoning - A + B + C: (The step outlined in paragraph 305-75(3)(a) of the ITAA 1997) xxxx | Detailed Reasoning - E: Amount in the foreign Pension Scheme #1 vested in the Taxpayer when the lump sum was transferred to foreign Pension Scheme #2 xxxx | Detailed Reasoning - E - D: (The step outlined in paragraph 305-75(3)(b) of the ITAA 1997) xxxx | Detailed Reasoning - G: The proportion of the total days during the period (from the Residency Date to date of receipt) which the Taxpayer was an Australian resident. 1 | Detailed Reasoning - H: Previously exempt fund earnings (if any) 0.00 | Detailed Reasoning - I: F x G + H = Applicable Fund Earnings (as future previously exempt fund earnings) (The steps outlined in paragraphs 305-75(3)(c) and 305-75(3)(d) of the ITAA 1997) xxxx | Detailed Reasoning - Previously exempt fund earnings – Second transfer: foreign Pension Scheme #2 to foreign Pension Scheme #3: As you became a member of the foreign Pension Scheme #2 after you became a resident of Australia, the growth in the fund will be worked out in accordance with subsection 305-75(2) of the ITAA 1997. | Detailed Reasoning - A: Part of the lump sum attributable to contributions to the Fund nil | Detailed Reasoning - B: Part of the lump sum attributable to amounts transferred from foreign funds into the Fund xxxx | Detailed Reasoning - A + B: xxxx | Detailed Reasoning - D: Amount in foreign Pension Scheme #2 vested in the Taxpayer when the lump sum was transferred to foreign Pension Scheme #3 xxxx | Detailed Reasoning - D - C: 0 | Detailed Reasoning - F: All previously exempt fund earnings (if any) xxxx | Detailed Reasoning - G: E + F = Applicable Fund Earnings (as future previously exempt fund earnings) xxxx | Detailed Reasoning - Transfer from foreign Pension Scheme #3 into the Australian SMSF: As you became a member of the foreign Pension Scheme #3 after you became a resident of Australia, the growth in the fund will be worked out in accordance with subsection 305-75(2) of the ITAA 1997. As discussed above, any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt. | Detailed Reasoning - A: Part of the lump sum attributable to contributions to the Fund nil nil | Detailed Reasoning - B: Part of the lump sum attributable to amounts transferred from foreign funds into the Fund xxxx xxxx | Detailed Reasoning - A + B: xxxx xxxx | Detailed Reasoning - D: Amount in foreign Pension Scheme #3 vested in the Taxpayer when the lump sum was transferred to SMSF xxxx xxxx | Detailed Reasoning - D - C: nil nil | Detailed Reasoning - F: All previously exempt fund earnings (if any) xxxx xxxx | Detailed Reasoning - G: Applicable Fund Earnings attributable to lump sum payment to SMSF xxxx xxxx | Detailed Reasoning - F-G: Previously exempt fund earnings carried forward xxxx | Detailed Reasoning - Previously exempt fund earnings – Second transfer: foreign Pension Scheme #2 to foreign Pension Scheme #4: As you became a member of the foreign Pension Scheme #2 after you became a resident of Australia, the growth in the fund will be worked out in accordance with subsection 305-75(2) of the ITAA 1997. | Detailed Reasoning - A: Part of the lump sum attributable to contributions to the Fund nil | Detailed Reasoning - B: Part of the lump sum attributable to amounts transferred from foreign funds into the Fund xxxx | Detailed Reasoning - A + B: xxxx | Detailed Reasoning - D: Amount in foreign Pension Scheme #2 vested in the Taxpayer when the lump sum was transferred to foreign Pension Scheme #4 xxxx | Detailed Reasoning - D - C: $0 | Detailed Reasoning - F: All previously exempt fund earnings (if any) xxxx | Detailed Reasoning - G: E + F = Applicable Fund Earnings (as future Previously Exempt Fund Earnings) (The steps outlined in paragraphs 305-75(2)(a), (b) and (c) of the ITAA 1997) xxxx | Detailed Reasoning - Foreign Pension Scheme #4 into the Australian SMSF: As you became a member of the foreign Pension Scheme #4 after you became a resident of Australia, the growth in the fund will be worked out in accordance with subsection 305-75(2) of the ITAA 1997. As discussed above, any amounts in pound sterling are translated into Australian dollars using the exchange rate applicable on the date of receipt. | Detailed Reasoning - A: Part of the lump sum attributable to contributions to the Fund nil nil | Detailed Reasoning - B: Part of the lump sum attributable to amounts transferred from foreign funds into the Fund xxxx xxxx | Detailed Reasoning - A + B: xxxx xxxx | Detailed Reasoning - D: Amount in foreign Pension Scheme #4 vested in the Taxpayer when the lump sum was transferred to SMSF xxxx xxxx | Detailed Reasoning - D - C: nil nil | Detailed Reasoning - F: All previously exempt fund earnings (if any) xxxx xxxx | Detailed Reasoning - G: Applicable Fund Earnings attributable to lump sum payment to SMSF xxxx xxxx | Detailed Reasoning - F-G: Previously exempt fund earnings carried forward xxxx Therefore the 'applicable fund earnings' amount in respect of the lump sum amounts transferred from the foreign Pension Schemes that should be included in your assessable income for the 2018 year of income is $xxxx . As the entirety of the benefits in foreign Pension Scheme #3 and foreign Pension Scheme #4 were transferred to an Australian superannuation fund, you can elect to treat the assessable part of the lump sum as assessable in the SMSF under section 305-80 of the ITAA 1997. | Detailed Reasoning - Relevant legislative provisions: Income Tax Assessment Act 1997 section 305-70 Income Tax Assessment Act 1997 section 305-75 Income Tax Assessment Act 1997 section 305-80 Income Tax Assessment Act 1997 section 960-50 Income Tax Assessment Act 1997 section 995-1 Superannuation Industry (Supervision) Act 1993 subsection 10(1) | Detailed Reasoning - We followed these ATO view documents: ATO Interpretative Decision ATO ID 2015/7: Foreign currency translation rules in working out 'applicable fund earnings' under section 305-75 of the ITAA 1997