Private ruling: Lump sum payment from a foreign pension fund
Published: April 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Is a lump sum payment received by you from a foreign pension fund within 6 months of you becoming an Australian resident non-assessable, non-exempt income under section 305-60 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: You migrated to Australia during the 2014-15 income year as a permanent resident. You hold an interest in a pension scheme in the overseas country (the Fund). You could not access your benefits in the Fund other than at retirement, invalidity or death. You will receive a retirement lump sum amount from the Fund within 6 months of becoming a permanent resident. You cannot transfer any of the benefits in the Fund into an Australian superannuation fund.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 295-95(2) | Income Tax Assessment Act 1997 section 305-60 | Income Tax Assessment Act 1997 subsection 995-1(1) | Superannuation Industry (Supervision) Act 1993 section 10 | Superannuation Industry (Supervision) Act 1993 section 19 | Superannuation Industry (Supervision) Act 1993 section 62

Reasons for decision: Summary: Provided that you receive the lump sum payment from the Fund within 6 months of becoming an Australian resident, the payment will be non-assessable, non-exempt income as all the conditions under section 305-60 of the ITAA 1997 would be satisfied. | Detailed Reasoning - Lump sum payments transferred from foreign superannuation funds: Under section 305-60 of the Income Tax Assessment Act 1997 (ITAA 1997), a superannuation lump sum you receive from a foreign superannuation fund is non-assessable, non-exempt income if: (a) you receive it within 6 months after you become an Australian resident; and (b) it relates only to a period: (i) when you were not an Australian resident; or (ii) starting after you became an Australian resident and ending before you receive the payment; and (c) it does not exceed the amount in the fund that was vested in you when you received the payment. Before determining whether section 305-60 of the ITAA 1997 applies, it is necessary to ascertain whether the entity making the payment is a foreign superannuation fund. | Detailed Reasoning - Meaning of '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. | Detailed Reasoning - The meaning of 'superannuation fund': '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 (the SISA). 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 - The meaning of 'provident, benefit, superannuation or retirement fund': 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. The issue of what constitutes a provident, benefit, superannuation or retirement fund was discussed by the Full Bench of the High Court in Mahony v. Federal Commissioner of Taxation (1967) 41 ALJR 232; (1967) 14 ATD 519 ( Mahony ). In that case, 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…'. This narrower purpose meant that the benefits had to be 'characterised by some specific future purpose' such as the example given by Justice Kitto of a funeral benefit. Furthermore, Justice Kitto's judgment indicated that a fund does not satisfy any of the three provisions, that is, 'provident, benefit or superannuation fund', if there exist provisions for the payment of benefits 'for any other reason whatsoever'. In other words, though a fund may contain provisions for retirement purposes, it could not be accepted as a superannuation fund if it contained provisions that benefits could be paid in circumstances other than those relating to retirement. 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). 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 (and the Superannuation Industry (Supervision) Regulations 1994 (SISR)) as providing guidance as to what 'benefit' or 'specific future purpose' a superannuation fund should provide. In view of the legislation and the decisions made in Scott and Mahony , 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. It is evident that the Fund was established outside of Australia and that the central management and control of the fund is ordinarily outside of Australia. Based on that fact and the fact that you could not access your benefits in the Fund other than on retirement, invalidity or death, the Commissioner considers that the Fund is a foreign superannuation fund as defined in subsection 995-1(1) of the ITAA 1997. | Detailed Reasoning - Receive payment within 6 months after becoming Australia resident: You have advised that you will receive a lump sum payment from the Fund within 6 months of becoming an Australian resident. Provided that you receive the payment within 6 months of becoming an Australian resident, this condition is satisfied. | Detailed Reasoning - The payment relates to only a period when you were not an Australian resident: The payment relates to a period when you were not an Australian resident. Accordingly, this condition is satisfied. | Detailed Reasoning - The payment received does not exceed the amount in the fund vested in you: When the payment is received, the payment must not exceed the amount in the Fund that was vested in you. As the payment received by you will not exceed the amount in the Fund that was vested in you, this condition is satisfied. | Detailed Reasoning - Conclusion: Provided that you receive the lump sum payment from the Fund within six months of becoming an Australian resident, the payment will be non-assessable, non-exempt income as all the conditions under section 305-60 of the ITAA 1997 would be satisfied. As such, you would not be required to include the amount in your income tax return for the relevant income year.