Private ruling: Lump sum payments - Australian resident period
Date of advice: 10 February 2017
Published: July 2017
Ruling period: Income year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Does the Commissioner have a discretion to extend the six month period referred to in paragraph 305-65(1)(d) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: From approximately X years, your client worked as a staff member for an overseas organisation. Your client's employment was based overseas and the reason for termination of employment was mandatory retirement. In the 201X-1Y income year, before your client's termination of employment, your client completed a separation payment form and requested for a part of their benefits in an overseas Pension Fund (the Pension Fund) to be paid as a lump sum and the balance to be paid as a pension. Your client's benefits could not be accessed from the Pension Fund other than at death, retirement and invalidity. Your client's date of Australian residency (residency date) commenced shortly after termination of employment. Your client states not being a resident of Australia during the overseas employment. In a letter dated X months after the residency date (the letter) the Pension Fund confirmed a portion of your client's benefits would be paid was a lump sum and the remainder as periodic monthly benefit. In the letter it also stated that arrangements were made to remit your client's periodic benefit monthly in arrears and that the first payment would represent the retrospective amounts due to your client. Shortly after the letter was received, your client received a lump sum payment of $XX,XXX and a retroactive amount of $X,XXX from the Pension Fund. These amounts were deposited into your client's Australian bank where they were converted to Australian dollars. Your client states that the payments were not received within six months of termination of employment due to delays caused by the Employer.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 305-B | Income Tax Assessment Act 1997 section 305-65 | Income Tax Assessment Act 1997 section 305-70

Reasons for decision: Summary: The Commissioner does not have discretion to extend the period in paragraph 305-65(1)(d) of the ITAA 1997 to a date that is more than six months after the termination of your client's overseas employment. Consequently, section 305-65 of the ITAA 1997 does not apply in this case and the lump sum payment your client received from the Pension Fund would fall for consideration under section 305-70 of the ITAA 1997 as to whether any part of the lump sum payment is assessable. | Detailed Reasoning - Detailed reasoning: From the facts provided it is accepted that the Pension Fund satisfies the definition of a superannuation fund. In addition, it is clear the payer of the lump sum payment is established outside of Australia with its central management and control outside of Australia. Therefore, on the basis of the information provided, the Commissioner considers the lump sum payment your client received is from a foreign superannuation fund as defined in subsection 995-1(1) of the ITAA 1997. | Detailed Reasoning - The six month residency rule: The tax treatment of superannuation lump sums received by a resident taxpayer from certain foreign superannuation funds is set out in Subdivision 305-B of the ITAA 1997 and depends whether the taxpayer receives it within, or after, six months after their residency commences or foreign employment ends. Relevantly, in accordance with subsection 305-65(1) of the ITAA 1997, a superannuation lump sum received by person in consequence of the termination of their employment in a foreign country is not assessable and is not exempt income, that is, it is tax-free if : … (b) it relates only to the period of that employment, holding of office, or engagement; and (c) you were an Australian resident during the period of the employment, holding of office or engagement; and (d) you receive the lump sum within 6 months after the termination; and…. Based on the above, the lump sum payment in question, that is, the $XX,XXX, which your client received from the Pension Fund during the 201A-1B income year in consequence of the termination of employment does not come under section 305-60 of the ITAA 1997 because: (a) the payment, notwithstanding there were delays in its being paid to your client, was received more than six months after the termination; and (b) the Commissioner does not have discretion to extend the date of receipt beyond six months after the termination. Further, where a payment is received beyond six months after termination subsection 305-65(1) of the ITAA 1997 states: …. Note: If you received the lump sum after that period of 6 months, the lump sum will fall within section 305-70. Accordingly, the lump sum payment your client received from the Pension Fund would fall for consideration under section 305-70 of the ITAA 1997 as to whether any part of the lump sum payment is assessable.