Private ruling: Foreign investment funds
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Is the growth in your country X superannuation fund and investment bond subject to tax in Australia if the benefits are retained in country X and you are a temporary resident? | A1: No. | Q2: Is any part of the benefits proposed to be transferred from a country X pension scheme to an Australian superannuation fund assessable as applicable fund earnings where you are a temporary resident? | A2: No.

Relevant facts and circumstances: You are immigrating to Australia on a temporary visa. Your intention is to reside in Australia for a number of years, becoming an Australian permanent tax resident, whilst maintaining your temporary visa. You have the following investments in country X: · an occupational (final salary) employer sponsored superannuation fund · two private (non-occupational) superannuation funds · an investment bond which grows with investment growth. The value of your overseas investments is more than $XX. You are leaving your superannuation and investment bond in country X. You may at a later date decide to take lump sum payments from the superannuation funds or transfer the superannuation benefits to an Australian superannuation fund.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 6-5(2) | Income Tax Assessment Act 1997 Section 995-1 | Income Tax Assessment Act 1997 Section 768-910 | Income Tax Assessment Act 1997 Subsection 6-15(3) | Income Tax Assessment Act 1997 Section 10-5 | Income Tax Assessment Act 1997 Section 305-70 | Income Tax Assessment Act 1997 Subsection 768-910(1) | Income Tax Assessment Act 1997 Section 768-915

Reasons for decision: Summary: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. However, the foreign source income exemption for temporary residents, contained in Subdivision 768-R of the ITAA 1997, provides an exemption for most foreign income derived by temporary residents of Australia. A temporary resident is defined in section 995-1 of the ITAA 1997 as a person: 1. who holds a temporary visa granted under the Migration Act 1958 ; and 2. who is not an Australian resident within the meaning of the Social Security Act 1991 . 3. whose spouse is not an Australian resident within the meaning of the Social Security Act 1991 . 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; is exempt from income tax in Australia when derived by a temporary resident of Australia. | Detailed Reasoning - Assessability of the growth in the country X superannuation fund and investment bond for the 2010-11 and subsequent income years: The foreign investment fund (FIF) rules have been repealed by the Tax Laws Amendment (Foreign Source Income Deferral) Bill (No 1) 2010 which received royal assent as Act No 114 of 2010. This Act repeals the FIF rules and the deemed present entitlement rules in relation to the 2010-11 and later income years. Therefore from 1 July 2010 Australian residents with non-controlling shareholdings in foreign companies or with interests in foreign trusts no longer need to include income on an attribution basis under the FIF rules. In your case, if you have an interest in foreign investment funds, regardless of whether you retained the funds in country X or transfer them to Australia, as a temporary resident or permanent resident of Australia, the FIF provisions are not applicable from 1 July 2010. | Detailed Reasoning - Temporary resident: The following advice only applies where a lump sum payment from the country X pension scheme is received while you are a temporary resident of Australia. From 1 July 2007 the applicable fund earnings in relation to a lump sum payment from a foreign superannuation fund that is received more than six months after a taxpayer has become an Australian resident will be assessable under section 305-70 of the ITAA 1997. The remainder of the lump sum payment is not assessable income and is not exempt income. Section 10-5 of the ITAA 1997 lists the provisions in respect of statutory income. Relevantly included in this list is section 305-70 of the ITAA 1997. Subdivision 768-R of the ITAA 1997 provides tax relief for most foreign income derived by temporary residents of Australia. In particular, subsection 768-910(1) of the ITAA 1997 provides that statutory income derived from a foreign source, excluding a net capital gain which is covered by section 768-915 of the ITAA 1997 and employment related statutory income, is non-assessable non-exempt income when derived by a temporary resident of Australia. Therefore applicable fund earnings in relation to lump sum payments from foreign superannuation funds in country X, being statutory income from a foreign source are non-assessable non-exempt income under subsection 768-910(1) of the ITAA 1997 if a person is a temporary resident of Australia when the person derived the income. Subsection 6-15(3) of the ITAA 1997 provides that if an amount is non-assessable non-exempt income, it is not assessable income. Therefore, applicable fund earnings in relation to a lump sum payment from a foreign superannuation fund in country X for a temporary resident is not assessable income.

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