Private ruling: Foreign pension and lump sum gratuity
Date of advice: 25 March 2026
Published: 29 June 2026
Ruling period: Period ending DD MM YY | Period ending DD MM YY
Date scheme commenced: DD MM YY

Ruling: Q1: Will the monthly pension payments you will receive under the pension scheme from the foreign government be assessable income? | A1: Yes. | Q2: If the answer to question 1 above is Yes, will you be eligible for a Foreign Income Tax Offset (FITO) in respect of the monthly pension payments from the pension scheme? | A2: Yes. Issue 2 | Q3: Is the pension scheme a foreign superannuation fund as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A3: Yes. | Q4: Will any part of a lump sum payment from the scheme be applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A4: Yes.

Relevant facts and circumstances: Your date of birth is DD MM YY. You are an Australian citizen and resident for tax purposes. In MM YY you left Australia for a period, moving to City A to live and work. In MM YY you returned to Australia. While in City A you worked for the foreign government as a civil servant on pensionable terms. Your period of engagement in that role was DD MM YY to your resignation on DD MM YY. You and your spouse are retired. You will turn XX in MM YY. The foreign Government currently operates two statutory, non-contributory pension schemes for civil servants who are serving on pensionable terms. You are a member of the pension scheme. The scheme stipulates a retirement age of XX and does not allow for early retirement. It allows for deferred pension entitlements on resignation, until a member reaches age XX. It allows for death or injury-related retirement. It is a non-contributory scheme. Under the regulations for the schemeyoumay elect to take up to a specified percentage of the retirement benefit as a lump sum with the balance payable as a pension. You are planning on making an election to receive X% of the retirement benefit as a lump sum and X% as a monthly pension. The lump sum payment will not be taxable in City A. The ongoing monthly pension payments will be assessable in City A.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 6-5(1) | Income Tax Assessment Act 1997 subsection 6-5(2) | Income Tax Assessment Act 1997 subsection 6-10(1) | Income Tax Assessment Act 1997 subsection 6-10(2) | Income Tax Assessment Act 1997 subdivision 305-B | Income Tax Assessment Act 1997 section 305-70 | Income Tax Assessment Act 1997 section 305-75 | Income Tax Assessment Act 1997 subsection 770-10(1) | Income Tax Assessment Act 1997 section 960-50 | Income Tax Assessment Act 1997 subsection 995-1(1) | Income Tax Assessment (1997 Act) Regulations 2021 regulation 960-50.01(1) | Superannuation Industry (Supervision) Act 1993 subsection 10(1) | Superannuation Industry (Supervision) Act 1993 section 62 Summary - Issue 1 Question 1 | The monthly pension payments you receive will be assessable income and will need to be included in your Australian income tax return. | Detailed reasoning | Ordinary income and statutory income | Subsection 6-5(1) of the Income Tax Assessment 1997 (ITAA 1997) provides that assessable income includes 'income according to ordinary concepts', which is called ordinary income . | Subsection 6-5(2) of the ITAA 1997 provides that, if you are an Australian resident, your assessable income includes the ordinary income you derived directly or indirectly from all sources, whether in or out of Australia, during the income year. | Subsection 6-10(1) of the ITAA 1997 provides that assessable income also includes amounts that are not 'ordinary income', but which are included as income by statutory provisions. Subsections 6-10(2) and 6-10(4) of the ITAA 1997 refer to these amounts as statutory income , and if you are an Australian resident, include all amounts (from inside and outside Australia) within assessable income. | Income according to ordinary concepts | 'Income according to ordinary concepts' is not defined within the legislation; however, case law discussion has provided the following characteristics: | • It is received periodically | • It is earned as a result of work performed | • It is expected | • It is relied upon | • It replaces income or has the characteristics of income | In determining your liability to pay tax in Australia it would also be necessary to consider the operation of any applicable tax treaty contained in the International Tax Agreements Act 1953 (Agreements Act). Any such tax treaty would override domestic law in how income is to be taxed. However, as contained within paragraphs 3 and 4 of Taxation Ruling TR 97/19, Australia does not have a tax treaty with XXXX, and therefore these arrangements do not apply. | Application to your circumstances | In your case, you are an Australian resident taxpayer entitled to foreign government pension benefits as a result of your previous civil service for the foreign government. You are going to elect to receive these pension benefits as a X% lump sum payment and the remaining X% as monthly pension benefit payments. | The Commissioner considers that your pension payments will be ordinary income pursuant to subsection 6-5(1) of the ITAA 1997 as these payments have the characteristics of ordinary income: they have been earned as a result of work performed, are expected, and will be relied upon. The monthly pension benefits will also be received periodically. | Summary - Issue 1 Question 2 | As the monthly pension payments will be assessable both in Australia and in City A, you will be able to claim any tax paid on them in City A as a FITO. | Detailed reasoning | Foreign Income Tax Offsets | Subsection 770-10(1) of the ITAA 1997 provides that a taxpayer is entitled to a foreign income tax offset (FITO) for an amount of foreign income tax if they paid it in respect of an amount that is all or part of an amount included in their assessable income for the year. | Taxpayers may claim a FITO in relation to a foreign pension assessed as income if the country from which the foreign pension or annuity came withheld tax from the payment, they were not entitled to seek a refund of the foreign tax from that country, and the foreign pension or annuity is also taxable in Australia. | The tax offset has the effect of reducing the Australian tax that would otherwise be payable on the double-taxed amount. A FITO is a non-refundable tax offset. | To determine the amount of FITO in any particular year, a person must first calculate the total foreign income tax paid on amounts included in their assessable income for the year. | Application to your circumstances | You are receiving ordinary income from the foreign government in the form of your monthly pension payments arising from your civil service. Tax will be withheld from these payments in City A. | As no tax treaty exists between Australia and the foreign government, these payments are assessable income under section 6-5 of the ITAA 1997 and will need to be included in your Australian tax return. As tax will be withheld from the payments in City A, you are eligible for a FITO in Australia. | Summary - Issue 2 Question 1 | The pension scheme is considered to be a foreign superannuation fund as defined in subsection 995-1(1) of the ITAA 1997. | Detailed reasoning | Tax treatment for the Lump sum payments received from overseas entity | Section 305-70 of the ITAA 1997 provides that where the Taxpayer receives a lump sum from a foreign superannuation fund more than six months after becoming an Australian resident, they include the 'applicable fund earnings' of the lump sum (if any) in their assessable income. Applicable fund earnings are worked out under section 305-75 of the ITAA 1997. | If the entity making the lump sum payment is not a foreign superannuation fund, then section 305-70 of the ITAA 1997 will not have any application. | 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. | Relevantly, 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; | (d) 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. | 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 (SISA). Subsection 10(1) of the SISA states: | 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. | Meaning of 'provident, benefit, superannuation or retirement fund' | Whether the Plan is a foreign superannuation fund requires consideration of the meaning of the term 'provident, benefit, superannuation or retirement fund' in subsection 10(1) of the SISA. Each of these terms are not defined in the ITAA 1936, ITAA 1997, the SISA or elsewhere in the tax acts. Accordingly, those terms will derive their meaning from their ordinary meaning and the relevant case law. | In the context of considering the term 'provident, benefit or superannuation fund established for the benefit of employees', in former subparagraph 23(j)(i) of the ITAA 1936, the Full Bench of the High Court in Mahony v Commissioner of Taxation (Cth) (1967) 41 ALJR 232; (1967) 14 ATD 519 ( Mahony ) considered that this phrase denoted 'a purpose narrower than the conferral of benefits in a completely general sense' and had to be characterised by 'some specific future purpose'. In the case of a provident fund, against 'contemplated contingencies; in the case of a superannuation fund 'on retirement, death or cessation of employment'; and, in the case of a benefit fund 'a benefit characterised by some specific future purpose' (e.g. a funeral fund). | Furthermore, Justice Kitto's judgement in Mahony indicated that a fund does not satisfy any of the three provisions, that is, either a 'provident, benefit or superannuation fund', if there exist provisions for the payment of benefits 'for any other reason whatsoever'. | A similar approach was also adopted by Taylor J and Windeyer JJ in Mahony who said: | In other words, if they could, keeping within the terms of the trust, apply the fund or any portion thereof to purposes foreign to the true purposes of such a fund, then it would not be such a fund. | Accordingly, the purpose of the fund must be solely consistent with it being a 'provident, benefit or superannuation fund'. [1] Similar observations have been made in a number of other authorities. [2] | In the context of what constitutes a 'superannuation fund' and a 'fund', Justice Windeyer in Scott v. Federal Commissioner of Taxation (No. 2) (1966) 10 AITR 290; (1966) 40 ALJR 265; (1966) 14 ATD 333emphasised the 'sole purpose' requirement, stating: | 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. | More recently, in considering the term 'provident, benefit, superannuation or retirement fund' as it now appears in the definition of 'superannuation fund' in subsection 10(1) of the SISA, Senior Member FD O'Loughlin in Baker v. FC of T [2015] AATA 469 (Baker) stated at [16]: | Accordingly, a trust arrangement that is not a provident fund, benefit fund or retirement fund, that allows for payment of superannuation styled benefits and other benefits not permitted by the Supervision Act will not be a superannuation fund. | Whilst the Senior Member in Baker made reference to 'benefits not permitted by the Supervision Act' in the context of considering whether a particular fund which was not a 'provident, benefit or retirement fund' was a 'superannuation fund', it is noted that section 62 of the SISA largely replicates the relevant case law and requires the fund be 'maintained solely' for one or more of the 'core purposes' of providing benefits to a member when the events occur: • on or after retirement from gainful employment; | • attaining a prescribed age; or | • on the member's death (this may require the benefits being passed on to a member's dependants or legal representative). | Whether a fund has been established for the requisite purpose required, is determined by considering the terms of the trust deed. This is an objective determination, and it is not determined by the subjective intentions of the parties. [3] Whether a particular arrangement constitutes a superannuation fund is dependent upon the facts and circumstances of the case. Regard is had to the terms of the constituent arrangements and what the relevant trustee can and cannot do, and is and is not obliged to do, with the trust assets and property. [4] As Taylor and Windeyer JJ observed in Mahony : | It thus becomes necessary to look carefully and critically at the terms of the trust deed, at what is required and what is permitted - that is to say in what ways the trustees might, without any breach of the trusts it imposes, apply the trust property. | Under the Scheme, pension entitlements begin in the following circumstances: | • normal retirement age (generally age 60) | • deferred pension entitlements on resignation, until member reaches age 55 | • death or injury-related retirement | • commutation of up to 50% of the pension into a lump-sum gratuity. | The benefits from Scheme cannot be accessed other than at retirement, death or injury-related retirement and therefore meets the definition of a foreign superannuation fund. As the Scheme provides benefits solely for these specific future purposes, it satisfies the requirement that a superannuation fund must be maintained exclusively for the provision of retirement or retirement-related benefits. | Accordingly, the lump sum benefit from the Scheme is a superannuation lump sum payment from a foreign superannuation fund and section 305-70 of the ITAA 1997 will apply. | Summary - Issue 2 Question 2 | The earnings on the lump sum payment from your foreign superannuation fund will be applicable fund earnings under section 305-70 of the ITAA 1997? | Detailed reasoning | Applicable fund earnings | When a person receives a lump sum from a foreign superannuation fund more than six months after they became an Australian resident, then broadly, the earnings on their foreign superannuation during the period when they were a resident of Australia is included in their assessable income as 'applicable fund earnings' under section 305-70 of the ITAA 1997. | The applicable fund earnings amount is worked out in relation to a lump sum paid from a foreign superannuation fund, under either subsection 305-75(2) or subsection 305-75(3) of the ITAA 1997. Subsection 305-75(2) of the ITAA 1997 applies where the person was an Australian resident at all times during the period to which the lump sum relates. Subsection 305-75(3) of the ITAA 1997 applies where the person was not an Australian resident at all times during the period to which the lump sum relates. | For subsection 305-75(2) and subsection 305-75(3) of the ITAA 1997, the period to which the lump sum relates is the period during which funds are accumulated in a particular foreign superannuation fund for a member that has a relation to the superannuation lump sum paid by that fund. That is consistent with other parts of those subsections, which also focus on the foreign superannuation fund from which the lump sum is paid. | 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 (but before you receive it), the amount of your applicable fund earningsis 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 remainder of 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). | In this case, you were an Australian non-resident at the time you became a member of the Scheme, and you were not an Australian resident for the entire period to which the lump sum relates. Accordingly, the applicable fund earnings are calculated in accordance with subsection 305-75(3) of the ITAA 1997. | The effect of section 305-75 of the ITAA 1997 is that only the income earned in the foreign superannuation fund during your period of Australian residency, less amounts attributable to transfers into the fund and contributions, is included in your assessable income. Earnings that accrued while you were a non-resident do not form part of the taxable amount when the lump sum is paid. | Foreign currency conversion | The foreign currency translation rules for lump sums paid by 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). | For the purposes of working out your applicable fund earnings in relation to a superannuation lump sum under section 305-75 of the ITAA 1997, the correct rule for translating foreign currency into Australian dollars is the rule described in Item 11A of the table in subsection 960-50(6) of the ITAA 1997 (as modified by regulation 960-50.01(1) of the Income Tax Assessment (1997 Act) Regulations 2021 ). This means that the exchange rate at which it is reasonable to translate amounts into Australian currency for the purposes of section 305-75 of the ITAA 1997, is the exchange rate applicable at the time of receipt of the relevant superannuation lump sum directly by you or your complying superannuation fund. Specifically, under subsection 960-50(4) of the ITAA 1997, each amount or component that is denoted in a foreign currency must be translated into an Australian dollar equivalent first before any calculations are undertaken. | Applicable fund earnings choice | You may decide to pay your superannuation lump sum into your complying superannuation fund. If you do so, you may also choose to have all or part of your applicable fund earnings in respect of the lump sum included in the assessable income of the fund under section 305-80 of the ITAA 1997. Correspondingly, the amount of applicable fund earnings that would otherwise be included in your assessable income is then reduced by the applicable fund earnings chosen to be assessable in the fund. | You can make a choice, where section 305-70 of the ITAA 1997 applies, for applicable fund earnings to be included in the assessable income of your complying superannuation fund where: | • you are taken to have received the lump sum under section 307-15 of the ITAA 1997; and | • the whole of the lump sum is paid into a complying superannuation fund; and | • immediately after the lump sum is paid you no longer have a superannuation interest in the foreign superannuation fund. | You must make your choice in writing by completing the form Completing your choice to have your Australian super fund pay tax on a foreign super transfer (NAT 11724). | Your concessional contributions exclude applicable fund earnings that are included in the complying superannuation fund's assessable income due to a choice made under section 305-80 of the ITAA 1997. Any amount of the lump sum that is not included in the fund's assessable income as applicable fund earnings will be a non-concessional contribution of the fund. | Under the governing rules of the Scheme, only up to X% of your benefits may be taken as a lump sum. As a result, you will retain a remaining interest in the Scheme and therefore will not meet all the requirements of section 305-80 of the ITAA 1997. This means that any amount transferred from the Scheme into your Australian superannuation fund will be treated as a non-concessional contribution. | [1] See further the discussion of Member McCaffrey in Case R49 16 TBRD 219 at 221-222 as to whether an employee benefit fund was a 'provident, benefit or superannuation fund'. | [2] Cameron Brae Pty Ltd v Federal Commissioner of Taxation (2007) 161 FCR 468; Compton v Federal Commissioner of Taxation (1966) 116 CLR 233; W alstern Pty Ltd v. Commissioner of Taxation (2003) 138 FCR 1. | [3] Brynes v. Kendle [2011] HCA 26 at [115]. | [4] Baker at [12]; see also Raymor Contractors Pty Ltd v. Federal Commissioner of Taxation (1991) 91 ATC 4259.