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

Ruling: Q1: 1. Will the entire lump sum transferred from your overseas retirement fund be included in your assessable income in the year it is received? Answer: No. 2. Will the income earned in the fund while you were an Australian resident for tax purposes be included in your assessable income in the year it is received? Answer: Yes.

Relevant facts and circumstances: You are an Australian national by birth and studied and lived overseas for over 20 years. You worked as a teacher overseas and during this period contributions were made by you to an overseas retirement plan. You returned to Australia in 20XX and have been an Australian resident for tax purposes since then. The balance of the account in 20XX was approximately $70,000. You are considering transferring your retirement funds of over $A100,000 to Australia as a lump sum. The central management and control of the overseas fund is outside of Australia and withdrawals from the fund are usually not permitted until the plan participant reaches the minimum retirement age and can only be used to accumulate retirement income. You are currently 65 years of age.

Relevant legislative provisions: Income Tax Assessment Act 1997 - section 305-60 | Income Tax Assessment Act 1997 - section 305-70 | Income Tax Assessment Act 1997 - section 305-75 | Income Tax Assessment Act 1997 - section 770-10 | Income Tax Assessment Act 1997 - section 770-15 | Income Tax Assessment Act 1997 - section 770-70 | Income Tax Assessment Act 1997 - section 770-140

Reasons for decision: Detailed Reasoning - Lump sum payments from foreign superannuation funds: From 1 July 2007 the applicable fund earnings in relation to a lump sum payment (LSP) from a foreign superannuation fund that is received or transferred more than six months after a person has become an Australian resident will be assessable under section 305–70 of the Income Tax Assessment Act 1997 (ITAA 1997). The applicable fund earnings are subject to tax at the person's marginal rate. The remainder of the LSP is not assessable income and is not exempt income. The applicable fund earnings is the amount worked out under either subsection 305–75(2) or (3) of the ITAA 1997. Subsection 305–75(2) of the ITAA 1997 applies where the person was an Australian resident at all times during the period to which the lump sum relates. Subsection 305–75(3) of the ITAA 1997 applies where the person becomes an Australian resident after the start of the period to which the lump sum relates. Subsection 995-1(1) of the ITAA 1997, defines a superannuation fund as having the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SIS Act); that is an indefinitely continuing fund and is a provident, benefit, superannuation or retirement fund. In Mahony v Commissioner of Taxation (Cth) (1967) 41 ALJR 232; (1967) 14 ATD 519, Justice Kitto held that a fund had to exclusively be a provident, benefit or superannuation fund and that connoted a purpose narrower than the purpose of conferring benefits in a completely general sense. A superannuation fund that is established outside of Australia and has its central management and control outside of Australia would qualify as a foreign superannuation fund. The overseas fund is established outside of Australia and the central management and control is outside of Australia. In addition, withdrawals from the fund are usually not permitted until the plan participant reaches the minimum retirement age and can only be used to accumulate retirement income. Therefore, your overseas fund is considered to be a foreign superannuation fund for the purposes of section 305–70 of the ITAA 1997. | Detailed Reasoning - Calculation of Assessable Amount: You became a resident of Australia for tax purposes in 20XX and the lump sum payment will be made more than 6 months after this date. Therefore a portion of your lump sum payment will be assessable under subsection 305–70(2) of the ITAA 1997. Under this subsection, you will only be assessed on the income earned in the fund while you were a resident of Australia. That is, taxpayers will only be assessed on the accretion in the fund less any contributions made since they became a resident of Australia. The remainder of the lump sum is not assessable income and is not exempt income. The amount included as assessable income, and taxed at marginal rates of tax, is worked out under subsection 305–75(3) of the ITAA 1997. Under subsection 305–75(3) of the ITAA 1997, you work out your applicable fund earnings as follows: • work out the total of the following amounts: • the amount in the fund just before the day you first became an Australian resident for tax purposes; • any part of the payment attributable to contributions you made to the fund during the remaining period; and • any part of the payment attributable to amounts transferred into the fund from any other foreign superannuation fund during the remaining period • subtract that total amount from the amount in the fund when the lump sum was paid (before any deduction for foreign tax); • multiply the resulting amount by the proportion of the total days during the period when you were an Australian resident; • add the total of all previously exempt fund earnings (if any).