Private ruling: Foreign pension fund - Applicable fund earnings
Date of advice: 6 September 2017
Published: January 2018
Ruling period: Income year ending 30 June 2020
Date scheme commenced: 1 July 2019

Ruling: Q1: For the purposes of paragraph 305-75(3)(a)(i), will the Commissioner accept a value of £XX,XXX.XX representing the amount vested in you before the day you first became an Australian resident to calculate the applicable fund earnings? | A1: Yes

Relevant facts and circumstances: You arrived in Australia from the Country A on in the 2001-02 income year and have been an Australian resident for tax purposes since that date (the Residency Date). You held an interest in a Country A Pension Scheme, which is a pension scheme established and controlled in Country A. You intend to transfer the retirement benefits in the Country A Pension Scheme into Australia in the 2019-20 income year in the form of a lump sum transfer and annual pension. You can only access your benefits in the Country A Pension Scheme at retirement. You have obtained an estimate of your retirement benefits from the Country A Pension Scheme indicating the notional value of the annual pension and lump sum amount on the day before your residency date. Estimates provided by the Country A Pension Scheme indicate that both the annual pension and tax-free lump sum values are indexed according to a Pensions Increase Factor which aligns the Fund’s growth with Country A CPI. You made no contributions to the Country A Pension Scheme since becoming a resident of Australia and have no intention to make additional contributions. You are over the preservation age.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 305-70 | Income Tax Assessment Act 1997 section 305-75 | Income Tax Assessment Act 1997 section 305-80 | Income Tax Assessment Act 1997 section 960-50 | Income Tax Assessment Act 1997 subsection 960-50(1) | Income Tax Assessment Act 1997 subsection 960-50(4) | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Summary: The Commissioner accepts that the total amount in the Country A Pension Fund on the day before you became an Australian resident is to be the value provided by the Country A Pension Fund. | Detailed Reasoning - Lump sum payments transferred from foreign superannuation funds: ‘ Foreign superannuation fund ’ is defined in subsection 995-1(1) of the ITAA 1997. From the information provided, the Country A Pension Fund satisfies the definition of a foreign superannuation fund. Therefore, section 305-70 of the ITAA 1997 applies in this case as the superannuation lump sum will be received in Australia more than six months after the Residency Date from a foreign superannuation fund. In accordance with section 305-70 of the ITAA 1997, you are required to include in your assessable income so much of the lump sum as equals their applicable fund earnings. | Detailed Reasoning - Applicable fund earnings: The ‘applicable fund earnings’ amount is worked out under section 305-75 of the ITAA 1997. Because you became an Australian resident after the start of the period to which the lump sum relates, the applicable fund earning is worked out in accordance with subsection 305-75(3) of the ITAA 1997 which states: If you become an Australian resident after the start of the period to which the lump sum relates, the amount of your applicable fund earnings is the amount (not less than zero) worked out as follows: (a) work out the total of the following amounts: (i) The amount in the fund that was vested in you just before the day (the start day ) you first became an Australian resident during the period; (ii) the part of the payment that is attributable to contributions to the fund made by or in respect of you during the remainder of the period; (iii) the part of the payment (if any) that is attributable to amounts transferred into the fund from any other *foreign superannuation fund during the period; (b) subtract that total amount from the amount in the fund that was vested in you when the lump sum was paid (before any deduction for *foreign tax); (c) multiply the resulting amount by the proportion of the total days during the period when you were an Australian resident; (d) add the total of all previously exempt fund earnings (if any) covered by subsections (5) and (6). The effect of section 305-75 of the ITAA 1997 is that you are only assessed on the growth of your superannuation benefits during the period at which you are an Australian resident. Earnings made during periods of non-residency, contributions, and transfers into the paying fund do not form part of the taxable amount when the overseas benefit is paid. | Detailed Reasoning - Calculation of the applicable fund earnings amount: You became a resident of Australia for tax purposes during the 2001-02 income year and the lump sum transfer to your Australian bank account will be made at a future date (that is, more than 6 months after they became an Australian resident). The Country A Pension Fund has provided an estimate of your Retirement benefit up to the date of Residency, which includes both your entitlements to a lump sum and pension, on the day before he became a resident of paragraph 305-75(3)(a)(i), in calculating your applicable fund earnings, the total vested amount in the Country A Pension Fund on the day before you became an Australian resident is agreed to be the value provided by the Country A Pension Fund.