Private ruling: Lump sum payments received from foreign superannuation funds
Date of advice: 19 May 2020
Published: July 2020
Ruling period: Year ended 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Is the total amount of the lump sum received by you from a foreign fund (the Plan) non-assessable non-exempt income under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: You became a resident of Australia for tax purposes in the 2003 financial year. You had relatives that lived in the UK. A relative who was over 75 years of age and had been drawing on their pension accounts with a foreign fund, passed away after you became a resident. Another relative who lived in the UK was the beneficiary of the pension funds. The value of the pension funds at this time was X. The relative transferred the amounts to the Plan to commence pension accounts and subsequently began to draw on them. The Plan is a foreign superannuation fund. The relative passed away and you were the beneficiary of the pension accounts. You received a lump sum of Y in the 2019 financial year which was the balance of the pension accounts in the Plan.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subdivision 305-B | Income Tax Assessment Act 1997 Section 307-65 | Income Tax Assessment Act 1997 Section 305-70 | Income Tax Assessment Act 1997 Section 305-75 | Income Tax Assessment Act 1997 Section 307-5 Reason for Decision | Subdivision 305-B of the ITAA 1997 deals with superannuation lump sums paid from foreign superannuation funds. | Section 307-65 defines a superannuation lump sum as a superannuation benefit that is not a superannuation income stream benefit. Section 307-5 includes in the definition of a superannuation benefit a payment to a taxpayer from a superannuation fund, after another person's death, because the other person was a member of the fund. Where a lump sum from a foreign superannuation fund is received by a taxpayer more than six months after they become an Australian resident, section 305-70 applies to include any applicable fund earnings (AFE) in assessable income. The remainder of the lump sum is not assessable income and is not exempt income. | The amount of AFE is determined using the method in subsection 305-75(2) where the taxpayer was an Australian resident for the whole of the period to which the lump sum relates. | Subsection 305-75(2) states: | If you were an Australian resident at all times during 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 part of the lump sum that is attributable to contributions made by or in respect of you on or after the day when you became a member of the fund (the start day ); | (ii) the part of the lump sum (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 income tax); | (c) add the total of all your previously exempt fund earnings (if any) covered by subsections (5) and (6). | In the situation of death benefit payments some of the references to "you" and "your" in the legislation, which literally would refer to the death benefit recipient, must be interpreted as referring to the deceased fund member to avoid anomalous results in applying the method in subsection 305-75(2). | In this case the amount of AFE determined by applying the method in subsection 305-75(2) is zero. Therefore, the total lump sum is not assessable income and is not exempt income.

Reasons for decision: Summary: Subdivision 305-B of the ITAA 1997 deals with superannuation lump sums paid from foreign superannuation funds. Section 307-65 defines a superannuation lump sum as a superannuation benefit that is not a superannuation income stream benefit. Section 307-5 includes in the definition of a superannuation benefit a payment to a taxpayer from a superannuation fund, after another person's death, because the other person was a member of the fund. Where a lump sum from a foreign superannuation fund is received by a taxpayer more than six months after they become an Australian resident, section 305-70 applies to include any applicable fund earnings (AFE) in assessable income. The remainder of the lump sum is not assessable income and is not exempt income. The amount of AFE is determined using the method in subsection 305-75(2) where the taxpayer was an Australian resident for the whole of the period to which the lump sum relates. Subsection 305-75(2) states: If you were an Australian resident at all times during 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 part of the lump sum that is attributable to contributions made by or in respect of you on or after the day when you became a member of the fund (the start day ); (ii) the part of the lump sum (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 income tax); (c) add the total of all your previously exempt fund earnings (if any) covered by subsections (5) and (6). In the situation of death benefit payments some of the references to "you" and "your" in the legislation, which literally would refer to the death benefit recipient, must be interpreted as referring to the deceased fund member to avoid anomalous results in applying the method in subsection 305-75(2). In this case the amount of AFE determined by applying the method in subsection 305-75(2) is zero. Therefore, the total lump sum is not assessable income and is not exempt income.