Private ruling: Applicable fund earnings
Date of advice: 13 December 2023
Published: 5 February 2024
Ruling period: 30 June 2023
Date scheme commenced: 1 July 2022

Ruling: Q1: Is any part of the lump sum payment received by The Taxpayer from the foreign fund assessable as applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes. The applicable fund earnings are $X.

Relevant facts and circumstances: The Taxpayer became a resident of Australia for taxation purposes on DD MM YYYY. While living overseas, the Taxpayer became a member of a Country A fund. The Taxpayer can only access his superannuation benefits from the foreign fund when they retire. The Taxpayer had withdrawn their lump sum payment on DD MM YYYY. The Taxpayer was able to provide the value amount in the scheme that was vested in the Taxpayer on residency date. There have been no contributions made into the Country A Fund since the Taxpayer became an Australian resident for tax purposes. There have been no transfers into the Country A Fund since the Taxpayer became an Australian resident for tax purposes. On DD MM YYYY, the Taxpayer received a lump sum payment of (Australian dollar $X) from the Country A Fund. The payment was made into the Taxpayer's Australian bank account. The exchange rate on DD MM YYYY was AUD = Country A XXX.

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 995-1 | Superannuation Industry (Supervision) Act 1993 Section 10(1)

Reasons for decision: Summary: 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 the foreign fund can only be accessed at retirement. Therefore, we are satisfied, the foreign fund meets the definition of a foreign superannuation fund. In accordance with 305-70 of the ITAA 1997, if an individual taxpayer receivesa 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. In this case,the relevant fund 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 thenremained an Australian resident at all times until the lump sum was paid. Therefore, the applicable fund earnings are calculated in accordance with subsection 305-75(3) of the ITAA 1997. The effect of section 305-75 of the ITAA 1997 is thatthe individual taxpayer isonly assessed on the income theyearned on theirbenefits in the foreign fund whiletheywere 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. An amount of applicable fund earnings may also include amounts of previously exempt fund earnings which occur where an amount in a foreign super fund is transferred to another foreign super fund before being received in Australia. These earnings would not otherwise be included and are set aside until the lump sum is transferred to you, or your complying Australian super fund. The foreign currency translation rules for lump sum transfers from foreign superannuation funds are explained 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 (ATO ID 2015/7). We use the exchange rate that applied when the Taxpayer received the lump sum, to work out the Australian dollar equivalent for the amount in the foreign superannuation fund that was vested in the Taxpayer on a certain date. Using an exchange rate of AUD $1 = Country A XX as at DD MM YYYY, the 'applicable fund earnings' amount has been calculated in accordance with subsection 305-75(3) of the ITAA 1997. The Taxpayer should include their applicable fund earnings of $X in their assessable income for the 2022-23 income year.