Private ruling: Assessability of foreign lump sum payment
Published: February 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Question and answer | Is the foreign lump sum you received assessable in Australia? | No.

Relevant facts and circumstances: You are an Australian resident for tax purposes. You previously lived and worked in country X. During your previous occupation in country X, you contributed to an employer related insurance or provident fund through additional tax deductions from your wages. Following retirement, you were entitled to receive a pension from the fund which is taxable in Australia. You were also entitled to receive a lump sum payment from the fund which was additional to the pension. The lump sum was paid into your country X bank account. The payment of the lump sum did not reduce or otherwise affect the amount of your pension. You believe that the lump sum payment represents a return of a portion of the tax you paid while you were working.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1997 Section 6-10

Reasons for decision: Detailed Reasoning - Ordinary income: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes income according to ordinary concepts (ordinary income) derived from all sources, whether in or out of Australia, during the income year. Ordinary income has generally been held to include three categories, namely income from rendering personal services, income from property and income from carrying on a business. Other characteristics of income that have evolved from case law include receipts that: • are earned, • are expected, • are relied upon, or • have an element of periodicity, recurrence or regularity. The foreign lump sum payment you received was not income from rendering personal services, income from property or income from carrying on a business. Further, although the payment could be said to have been expected and relied upon, it was not earned as such and was a one-off payment and thus did not have an element of recurrence or regularity. The payment you received was a lump sum of a capital nature and is not considered to be ordinary income. | Detailed Reasoning - Statutory income: Section 6-10 of the ITAA 1997 provides that your assessable income also includes statutory income amounts that are not ordinary income but are included in assessable income by another provision of the income tax legislation. In your case, there does not appear to be another provision of the legislation that specifically deals with the type of lump sum payment you received. Further, the general principle in relation to the receipt of lump sums that are in the nature of provident, benefit, superannuation or retirement fund payments is that a payment will not be assessable if it merely represents a return of funds previously contributed or invested by the recipient. In your case, you received a lump sum payment from an insurance or provident fund which you state represents the return of a portion of your contributions. The documentation provided evidences your contention. We note that you are also in receipt of a pension derived from the fund that is taxable in Australia. Therefore, the foreign lump sum payment you received is not assessable as statutory income.