Private ruling: Foreign superannuation fund
Date of advice: 9 April 2018
Published: June 2018
Ruling period: Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022
Date scheme commenced: 1 July 2018

Ruling: Q1: Is the foreign pension vehicle a foreign superannuation fund? | A1: Yes | Q2: Will the foreign superannuation fund be assessable when you become a permanent resident of Australia if you do not transfer any amount to Australia? | A2: No.

Relevant facts and circumstances: 1. You are currently a temporary resident. 2. You anticipate becoming a permanent resident during the 2018 calendar year. 3. You have a self-invested pension fund in Country X (referred to as the Fund). 4. The Fund was established under a Retirement Annuity Contract between a company incorporated in Country X and yourself. 5. You are the only director and shareholder of the company. 6. The company holds and manages the Fund which has been established for a single purpose to provide you with a pension plan. 7. Benefits are to be paid upon your retirement or death. 8. The fund has not rolled over into an Australian Super fund. 9. There have been no contributions to the fund while you have been residing in Australia. 10. The Retirement Annuity Contract governing aspects of the Fund, such as suitable investments, restrictions of taking benefits before retirement age, etc. was approved by Country X Taxes Office under their relevant laws. 11. This Fund was previously recognised in Country Y to allow the transfer of your Country Y pension assets into the fund. 12. The Fund is no longer recognised in Country Y as no further transfers from Country Y are required. 13. If you are successful in attaining permanent residency in Australia, you intend to leave after four years and return to country X. 14. The fund will not be transferred to Australia and you will not be making any further contributions. 15. Your superannuation contributions while in Australia will be made to an Australian superannuation fund.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Assessment Act 1997 Subsection 295-95(2) | Superannuation Industry (Supervision) Act 1993 Subsection 10(1) | Superannuation Industry (Supervision) Act 1993 Section 19 | Superannuation Industry (Supervision) Act 1993 Section 62

Reasons for decision: Summary: The fund is considered a foreign superannuation fund as per subsection 995-1(1) of the ITAA 1997. | Detailed Reasoning - Meaning of ‘foreign superannuation fund’: 1. 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. 2. 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 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. 3. The three tests under subsection 295-95(2) must be satisfied at the same time. If a fund fails to satisfy any one of the tests at a particular time, it is not an Australian superannuation fund at that time. 4. A superannuation fund that is established outside of Australia and has all of its assets 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. | Detailed Reasoning - Meaning of ‘superannuation fund’: 5. ‘Superannuation fund’ is defined in subsection 995-1(1) of the ITAA 1997 as having the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA). 6. Subsection 10(1) of the SISA provides that: superannuation fund means: (a) a fund that: (i) is an indefinitely continuing fund; and (ii) is a provident, benefit, superannuation or retirement fund; or (b) a public sector superannuation scheme. | Detailed Reasoning - Meaning of ‘provident, benefit, superannuation or retirement fund’: 7. The High Court examined both the terms superannuation fund and fund in Scott v . Federal Commissioner of Taxation (No. 2) (1966) 10 AITR 290; (1966) 40 ALJR 265; (1966) 14 ATD 333 (Scott). In that case, Justice Windeyer stated: …I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion “fund”, I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalised. I do not put this forward as a definition, but rather as a general description 8. In section 62 of the SISA, a regulated superannuation fund must be ‘maintained solely’ for the ‘core purposes’ of providing benefits to a member when the events occur: ● on or after retirement from gainful employment; or ● attaining a prescribed age; and ● on the member’s death (this may require the benefits being passed on to a member’s dependants or legal representative). 9. Notwithstanding the SISA applies only to ‘regulated superannuation funds’ (as defined in section 19 of the SISA), and foreign superannuation funds do not qualify as regulated superannuation funds as they are established and operate outside Australia, the Commissioner views the SISA as providing guidance as to what ‘benefit’ or ‘specific future purpose’ a superannuation fund should provide. 10. In view of the legislation and the decision made in Scott , the Commissioner’s view is that for a fund to be classified as a superannuation fund, it must exclusively provide a narrow range of benefits that are characterised by some specific future purpose. That is, the payment of superannuation benefits upon retirement, invalidity or death of the individual or as specified under the SISA. 11. In this case, the supporting Retirement Annuity Contract provided outlines that the benefits of the Fund are to be paid out upon retirement or death. It also states not to make any assets of the Fund available for member’s personal benefit or enjoyment. 12. Because the benefits in the Fund are paid for retirement purposes only, the Fund does meet the ‘sole purpose test’ and therefore can be considered as a ‘superannuation fund’ for Australian income tax purposes. | Summary: You do not intend to make any contributions or withdraw any amounts from your foreign superannuation fund. Until you receive any funds from the foreign superannuation fund any income that is accumulated in the fund is not assessable to you in Australia. | Detailed Reasoning - Detailed reasoning: Your liability to income tax for an income year is based on your taxable income for the year. Taxable income is assessable income less allowable deductions. Assessable income consists of ordinary income and statutory income. Ordinary income is income according to ordinary concepts and statutory income is income that is assessable by virtue of a specific provision in the income tax legislation. Some income is not assessable, either because it is exempt income or non-assessable non-exempt income. Under the circumstances you have outlined, you will not be receiving the funds from your foreign superannuation fund and therefore there is no income for you to declare in your Australian income tax returns. | Detailed Reasoning - Lump sums received within 6 months of becoming an Australian resident: Where an Australian resident receives a lump sum benefit from a foreign superannuation fund within six months of becoming an Australian resident, the amount is not assessable income and not exempt income if it relates only to a period: (i) when the taxpayer was not an Australian resident, or (ii) starting after the taxpayer became an Australian resident and ending before he or she received the payment, and the payment does not exceed the amount in the fund that was vested in the taxpayer when the payment is received. | Detailed Reasoning - Transfer from a foreign super fund to an Australian super fund: An individual, who has a superannuation lump sum transferred from a foreign super fund directly to a complying Australian super fund more than six months after becoming an Australian resident, can choose to have all or part of the assessable part of the lump sum treated as assessable income of the Australian super fund. By doing so, the Australian super fund pays the relevant tax on the assessable part of the lump sum at the concessional fund tax rate of 15%, rather than you paying tax at your marginal rate. The individual can make this choice up until the day of lodgment of their income tax return for the year of transfer (or, if there is no need to lodge a tax return, the day they would have been required to lodge one). This is the case unless the governing rules of the Australian super fund provide an earlier time. If this choice is made, the form Completing your choice to have your Australian fund pay tax on a foreign super transfer (NAT 11724) must be submitted, which is available at ato.gov.au . Alternatively, a copy can be obtained by calling 13 10 20 to request a copy of the form. The form must be completed and submitted to the individual’s Australian fund. It is an essential part of making this choice. Once it is made, the choice cannot be revoked or varied. If this option is taken, all of the following conditions must apply: ● the individual is an Australian resident transferring their entire entitlement in a foreign super fund to a complying Australian super fund ● the individual receives their super entitlement more than six months after becoming an Australian resident or terminating their foreign employment ● the entitlement being transferred includes earnings in the foreign fund, accumulated since becoming an Australian resident, that would have been assessable in their Australian tax return (that is, the individual would have paid tax on that amount at their marginal tax rate) ● the individual wants to have their Australian super fund pay income tax on some or all of these earnings instead (a super fund generally pays 15% tax). For information about how the assessable part of a super lump sum is calculated, please visit ato.gov.au and search for ‘tax treatments of transfers from foreign super fund’. | Detailed Reasoning - Transfer from a foreign super fund to an individual: An individual may choose to have the transfer from their foreign super fund paid directly to themselves or to another party on their behalf, instead of to an Australian super fund. If the lump sum from the foreign super fund is paid to the individual (or another person on their behalf) then the assessable amount of the payment will be included in their assessable income and taxed at their marginal rate. The assessable amount of a super lump sum from a foreign super fund transferred directly to an Australian super fund or to an individual is referred to as applicable fund earnings. It is essentially the growth in the foreign super fund between the time the individual becomes an Australian resident and when the lump sum is paid. You can request a private ruling to determine how much of a transfer is applicable fund earnings. Information about applying for a private ruling can be found on our website at ato.gov.au . | Detailed Reasoning - Receiving your super as a foreign pension: Most foreign pensions and annuities are taxable in Australia, even if tax was withheld from the payment by the country from which the payment came. A foreign income tax offset may be claimed against a pension in an individual’s income tax return if: ● the country from which the foreign pension or annuity came withheld tax from the payment ● the individual was not entitled to seek a refund of the foreign tax from that country, and ● the foreign pension or annuity is also taxable in Australia. A refund may result from the terms of an agreement between Australia and that country to prevent double taxation. | Detailed Reasoning - Contribution restrictions: When an amount is transferred from a foreign super fund to an Australian super fund, the Australian fund will report the transfer as a contribution for the financial year. A fund-capped contribution limit for a financial year applies depending on the individual’s age on 1 July of the financial year. If the Australian super fund receives a transfer from a foreign fund which is more than the applicable fund-capped contribution limit, it must return to the foreign fund the amount which is over the fund-capped contribution limit within 30 days. This rule is designed to prevent individuals from inadvertently exceeding their non-concessional contributions (contributions made into your superfund from after-tax income) cap. A personal superannuation deduction cannot be claimed for any part of the transfer from the foreign fund. For more information on the contributions cap for a financial year, visit ato.gov.au and search for ‘Key superannuation rates and thresholds’. | Detailed Reasoning - More information: You can call the Superannuation information line on 13 10 20 to learn more about the tax treatment of transfers and pension payments from foreign super funds. As each individual’s circumstances may differ greatly, it may also be pertinent to obtain independent financial advice about which option would be the most beneficial.