Private ruling: Lump sum payments from foreign superannuation funds
Date of advice: 28 October 2021
Published: January 2022
Ruling period: Income year ended 30 June 2020.
Date scheme commenced: 1 July 2019.

Ruling: Q1: Is any part of the lump sum payment received by the taxpayer from the foreign fund assessable as applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes.

Relevant facts and circumstances: The taxpayer became a resident of Australia for taxation purposes in the 2011-12 income year. While living overseas, the taxpayer became a member of the foreign fund, which is a defined benefit fund. The foreign fund only allows benefits to be paid on retirement or death. There have been no contributions into the foreign fund since the taxpayer became an Australian resident for tax purposes. There have been no transfers into the foreign fund since the taxpayer became an Australian resident for tax purposes. The taxpayer received a lump sum payment from the foreign fund in the 2019-20 income year.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 305-B | Income Tax Assessment Act 1997 section 305-70 | Income Tax Assessment Act 1997 section 305-75 We followed these ATO view documents | ATO Interpretative Decision ATO ID 2015/7: Foreign currency translation rules in working out 'applicable fund earnings' under section 305-75 of the ITAA 1997 | Reasons for decision | If an individual taxpayer receives a lump sum from a foreign superannuation fund more than six months after becoming an Australian resident, the taxpayer's assessable income includes any growth (applicable fund earnings) earned on the foreign superannuation interest while the taxpayer was an Australian resident. | In this case, the foreign fund is a foreign superannuation fund. The taxpayer became an Australian resident after the start of the period to which the lump sum relates. The taxpayer remained an Australian resident at all times until the lump sum was paid. Therefore, the applicable fund earnings is calculated in accordance with subsection 305-75(3) of the ITAA 1997. | The effect of section 305-75 of the ITAA 1997 is that the individual taxpayer is only assessed on the income they earned on their benefits in the foreign fund while they were an Australian resident. Earnings during periods of non-residency, contributions and transfers into the foreign fund are not assessable when the overseas benefit is paid. | An amount of applicable fund earnings may also include amounts of previously exempt fund earnings which occur where an amount in a foreign super fund is transferred to another foreign super fund before being received in Australia. These earnings would not otherwise be included and are set aside until the lump sum is transferred to you, or your complying Australian super fund. | The foreign currency translation rules for lump sum transfers from foreign superannuation funds are explained in ATO Interpretative Decision ATO ID 2015/7: Foreign currency translation rules in working out 'applicable fund earnings' under section 305-75 of the ITAA 1997 (ATO ID 2015/7). We use the exchange rate that applied when the taxpayer received the lump sum, to work out the Australian dollar equivalent for the amount in the foreign superannuation fund that was vested in the taxpayer on a certain date. | Using an exchange rate of A$1 = xxx as at the payment date, the 'applicable fund earnings' amount has been calculated in accordance with subsection 305-75(3) of the ITAA 1997. | The taxpayer should include their applicable fund earnings as calculated in the table below in their assessable income for the 2019-20 income year: | Item | Description | Amount in foreign currency | Amount in AUD ($) Exchange | A | Estimated value of the taxpayer's interest in the Fund on the day before the taxpayer became an Australian resident (the residency date or start day ) | xxx | $xxx | B | Part of the lump sum from contributions into the Fund. | 0.00 | $0.00 | C | Part of the lump sum from amounts transferred from other foreign funds. | 0.00 | $0.00 | D | A + B + C | (Calculated as per the step outlined in paragraph 305-75(3)(a) of the ITAA 1997) | xxx | $xxx | E | Amount in the Fund vested in the taxpayer when the lump sum was paid ( date of receipt ) | xxx | $xxx | F | E - D | (Calculated as per the step outlined in paragraph 305-75(3)(b) of the ITAA 1997) | xxx | $xxx | G | The proportion of the total days during the period from the residency date (start day) to the date of receipt, of which the taxpayer was an Australian resident | x | H | Previously exempt fund earnings (if any) | 0.00 | $0.00 | I | Applicable fund earnings = (F x G) + H | (Calculated as per the steps outlined in paragraphs 305-75(3)(c) and 305-75(3)(d) of the ITAA 1997) | $xxx