Private ruling: Foreign lump sum payments
Published: March 2012
Ruling period: Year ending 30 June 2010 | Year ending 30 June 2011
Date scheme commenced: 1 July 2009

Ruling: Q1: Is the lump sum payment made to you from a foreign endowment policy included in assessable income if you were a temporary resident when the lump sum was received? | A1:  | Q2: Are payments made to you from a foreign retirement annuity policy included in assessable income if you were a temporary resident when the payments were received? | A2: 

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You became a temporary Australian resident during the 2008-09 income year as you held a temporary visa (visa class 457) which was granted under the Migration Act 1958. The temporary visa (the visa) was for a specified period and you state that whilst you were a holder of the visa neither you or your spouse were Australian residents within the meaning of the Social Security Act 1991. You have not been in receipt of any salary or similar remuneration. During the 2009-10 and 2010-11 income years you received lump sum payments from overseas policies (the policies) which reached maturity upon you having attained a specified age. The policies consisted of: · a retirement annuity policy; and · an endowment policy. The policies did not allow for the early release of benefits. The benefits from the policies were payable by a life assurance company established and managed outside of Australia. The premiums on the policies were all personally paid by you and some were paid after your arrival in Australia. The documentation has been provided in relation to the premiums paid by you to the life assurance in relation to the policies. In the 2009-10 income year you commenced to receive a pension from the retirement annuity policy and at the same time your received part of your benefits from that policy as a lump sum payment. A lump sum payment was also received by you in the 2010 calendar year from the endowment policy which effectively closed that policy. The lump sum payments from the policies are tax-free in the overseas country. In the 2010-11 income year you became a permanent resident of Australia. Subsequent to you becoming a permanent resident of Australia you received no lump sum payments from the policies. You are over 55 years of age.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Subsection 6-10(4). | Income Tax Assessment Act 1997 Subsection 995-1(1). | Income Tax Assessment Act 1997 Section 768-910. | Income Tax Assessment Act 1997 Subsection 768-910(1).

Reasons for decision: Summary: The payments you received from your matured policies whilst you were a temporary resident of Australia do not represent assessable income for Australian tax purposes. | Detailed Reasoning - Detailed reasoning: Assessability of lump sums from the policies Subsections 6-5(2) and 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997) provide that the assessable income of a resident taxpayer includes ordinary or statutory income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. In view of the above, the effect of subsection 6-10(4) of the ITAA 1997 is that assessable income is not restricted to receipts which satisfy the concepts of ordinary income but also encompasses statutory income which may include one off amounts. Section 10-5 of the ITAA 1997 lists the provisions in respect of statutory income. Included in this list is section 305-70 which includes as assessable income the applicable fund earnings in relation to lump sum payments from foreign superannuation funds received more that six months after a taxpayer has become an Australian resident for tax purposes. It should be noted however that subdivision 768-R of the ITAA 1997 provides tax relief for most foreign income derived by temporary residents of Australia. In particular, section 768-910 of the ITAA 1997 provides that: ordinary income derived from a foreign source, excluding employment related income and capital gains on shares and rights acquired under employee share schemes; and · statutory income, other than a net capital gain, from a foreign source; · represent non-assessable non-exempt income when derived by a temporary resident of Australia. Therefore we have to first determine whether you are a temporary resident of Australia for income tax purposes. If you are a resident of Australia for tax purposes and meet the requirements to be a temporary resident as defined in subsection 995-1(1) of the ITAA 1997, the temporary resident rules apply to you. You are a temporary resident if: · you hold a temporary visa granted under the Migration Act 1958 ; · you are not an Australian resident within the meaning of the Social Security Act 1991 ; and · your spouse (if applicable) is not an Australian resident within the meaning of the Social Security Act 1991 . The Migration Act 1958 provides that a temporary visa is a visa to travel to and remain in Australia: · during a specified period; · until a specified event happens; or · while the holder has a specified status. Temporary visas are distinguished from permanent visas which allow a person to remain in Australia indefinitely. Under the Social Security Act 1991 , an Australian resident is generally a person who resides in Australia and is either an Australian citizen or holds a permanent resident visa or a protected special category visa. In your case, you were in Australia on a temporary visa (class 457). Your temporary visa was current for specified period. Neither you or your spouse were Australian residents within the meaning of the Social Security Act 1991 as you did not hold a permanent residency visa or a protected special category visa. Based on the facts provided, you are considered to have been a temporary resident for income tax purposes for the 2008-09 income year up to part of the 2010-11 income year, which covers the whole of the 2009-10 income year and part of the 2010-11 income year. Further, it should be noted that as the lump sum payments were made to you only whilst you were a temporary resident, there is no need to determine whether section 305-70 of the ITAA 1997 applies in your case. | Detailed Reasoning - Conclusion: Since you are considered to have been a temporary resident, any amounts you received from the overseas policies during the period that you were a temporary resident of Australia, either in the form of: · lump sum payments; · pension payments; or · a combination of both (as in the case of the retirement annuity policy), · are not assessable in Australia due to section 768-910 of the ITAA 1997. Further, it should be noted that a taxpayer cannot claim (or needs to apportion) an undeducted purchase price (UPP) deduction for overseas pension payments made whilst the taxpayer is/was a temporary resident as such payments are/were non-taxable during the period of temporary residency.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.