Private ruling: Transfer of benefits from overseas pension schemes
Published: July 2014
Ruling period: The year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997) in relation to multiple foreign fund transfers determined on a collective basis? | A1: No.

Relevant facts and circumstances: You became a permanent resident of Australia more than four years ago. You held interests in more than one pension scheme outside of Australia (the overseas Pension Schemes). In the 2013-14 income year you transferred your benefits from each of the overseas Pension Schemes to a complying superannuation fund in Australia. You have provided documentation from the overseas Pension Schemes. The documentation shows there were multiple overseas Pension Schemes with gains in a number of your overseas Pension Schemes and losses in relation to your other overseas Pension Schemes. These gains and losses are based on the values of your benefits in the schemes when you became an Australian resident for tax purposes and the value of your benefits when the transfers occurred

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 295-95(2) | Income Tax Assessment Act 1997 Section 305-70 | Income Tax Assessment Act 1997 Subsection 305-70(1) | Income Tax Assessment Act 1997 Section 305-75 | Income Tax Assessment Act 1997 Subsection 305-75 (2) | Income Tax Assessment Act 1997 Subsection 305-75 (3) | Income Tax Assessment Act 1997 Subsection 306-70 | Income Tax Assessment Act 1997 Subsection 295-95(2) | Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision: Summary: The applicable fund earnings in relation to multiple foreign superannuation fund transfers are not determined on a collective basis. The amount of the lump sum payments transferred from the overseas Pension Schemes, those which were calculated to be losses, are not included in your assessable income for the 2013-14 income year as 'applicable fund earnings' is less than zero. Further, as the 'applicable fund earnings' in respect of these pension schemes is less than zero, no election is required to have your Australian superannuation fund treat these transferred amounts as assessable income of the fund. A portion of the lump sum payments transferred from the overseas Pension Schemes, those which resulted gains, must each be included in assessable income as 'applicable fund earnings'. The applicable funds earnings are taxed at: • your marginal rate of tax in your tax return for the 2013-14 income year; or • at 15% if you made an election to have the Australian superannuation fund treat the transferred amounts as assessable income of the fund. | Detailed Reasoning - Lump sum payments transferred from foreign superannuation funds: 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 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 is subject to tax at the person's marginal rate. The remainder of the lump sum payment 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) applies where the person was an Australian resident at all times during the period to which the lump sum relates. Subsection 305-75(3) applies where the person was not an Australian resident at all times during the period to which the lump sum relates. An amount is only assessable under section 305-70 of the ITAA 1997 if the entity making the payment is a foreign superannuation fund. | Detailed Reasoning - Foreign superannuation fund: A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as follows: (a) a superannuation fund is a foreign superannuation fund at a time if the fund is not an Australian superannuation fund at that time; and (b) a superannuation fund is a foreign superannuation fund for an income year if the fund is not an Australian superannuation fund for the income year. Subsection 295-95(2) of the ITAA 1997 defines Australian superannuation fund as follows: A superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if: (a) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and (b) at that time, the central management and control of the fund is ordinarily in Australia; and (c) at that time either the fund had no member covered by subsection (3) (an active member ) or at least 50% of: (i) the total market value of the fund's assets attributable to superannuation interests held by active members; or (ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members; is attributable to superannuation interests held by active members who are Australian residents. Thus, 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 fact that some of its members may be Australian residents would not necessarily alter this. In this case, lump sum benefits were transferred from the overseas Pension Schemes. It is evident that the overseas Pension Schemes are pension schemes established outside of Australia and they are not Australian superannuation funds as defined in subsection 295-95(2) of the ITAA 1997. Based on the information provided, the Commissioner considers the overseas Pension Schemes satisfies the definition of a foreign superannuation fund under subsection 995-1(1). | Detailed Reasoning - Applicable fund earnings: You became a resident of Australia for tax purposes some time ago and received lump sum payments in respect of your entitlements in the overseas Pension Schemes during the 2013-14 income year: As the lump sum payments were made more than six months after you became an Australian resident for tax purposes, section 305-70 of the ITAA 1997 applies to include the 'applicable fund earnings' in your assessable income. The 'applicable fund earnings' are worked out under section 305-75 of the ITAA 1997. As mentioned earlier, subsection 305-75(3) applies where the person was not an Australian resident at all times during the period to which the lump sum relates. Subsection 305-75(3) of the ITAA 1997 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). Based on the facts provided, there are gains in relation to a number of your overseas Pension Schemes and losses in relation to your other overseas Pension Schemes. You asked us if you are able to assess the applicable fund earnings of the lump sum payments from the multiple foreign superannuation funds, that is, the overseas Pension Schemes, on a collective basis. Subsection 305-75(3) of the ITAA 1997 applies to each lump sum payment from a foreign superannuation fund to work out the amount of the applicable fund earnings. Furthermore, subsection 305-75(3) of the ITAA 1997 provides that applicable fund earnings is the amount (not less than zero). This means that where the lump sum payment from a foreign superannuation fund results in a loss, the amount of the applicable fund earnings is zero. In this case, the lump sum payments transferred from some of the overseas Pension Schemes have resulted in losses. Subsection 305-75(3) of the ITAA 1997 will deem the applicable fund earnings for each of these lump sum payments to be zero. Accordingly, the amounts of the lump sum payments transferred from the overseas Pension Schemes which resulted in losses are not included in your assessable income for the 2013-14 income year as 'applicable fund earnings' is less than zero. Further, as the 'applicable fund earnings' in respect of these pension schemes is less than zero, no election is required to have Australian superannuation fund treat these transferred amounts as assessable income of the fund. The lump sum payments from the other overseas Pension Schemes have each resulted in a gain. Accordingly, a portion of the lump sum payments transferred from each of the overseas Pension Schemes which resulted in gains must be included in assessable income as 'applicable fund earnings'. The applicable funds earnings are taxed at: • your marginal rate of tax in your tax return for the 2013-14 income year; or • at 15% if you made an election to have the Australian superannuation fund treat the transferred amounts as assessable income of the fund.