Private ruling: Lump sum payment from a foreign fund
Date of advice: 4 December 2015
Published: February 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is Foreign Fund A a 'superannuation fund' as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No | Q2: Is Foreign Fund B a 'superannuation fund' as defined in subsection 995-1(1) of the ITAA 1997? | A2: No

Relevant facts and circumstances: Your client is not a resident of Australia for tax purposes and is a dual citizen of an overseas country and Australia. Your client, at the time of the private ruling application, had an amount in a foreign pension scheme (Foreign Fund A). Foreign Fund A is a personal savings plan that allows you to save for the future on a tax-sheltered basis in the overseas country. The funds in Foreign Fund A can be withdrawn at any time. During the relevant year income year, your client intends to transfer funds in Foreign Fund A to a new overseas pension scheme (Foreign Fund B). Information available indicates that an individual does not need to reach pensionable age to open Foreign Fund B and start receiving income from Foreign Fund B. Following the transfer, your client intends to migrate to Australia and transfer the lump sum amount in Foreign Fund B to Australia within 6 months of becoming an Australian resident.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 99B | Income Tax Assessment Act 1936 Subsection 481(3) | Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Section 10-5 | Income Tax Assessment Act 1997 Subsection 295-95(2) | 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: Neither Foreign Fund A or Foreign Fund B is a 'superannuation fund' as defined in subsection 995-(1) of the ITAA 1997 the funds within them can be accessed for pre-retirement purposes. | 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 - 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 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': 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. | Detailed Reasoning - Application to Foreign Fund A: Information available indicates that the benefits in Foreign Fund A can be withdrawn at any time. As the benefits in Foreign Fund A can be accessed for pre-retirement purposes, and taking into account the legislation and cases discussed above, it is considered that the Foreign Fund A cannot viewed as a 'superannuation fund' for Australian income tax purposes. Therefore, on the basis of the information provided, the Commissioner considers Foreign Fund A is not a 'foreign superannuation fund' as defined in subsection 995-1(1) of the ITAA 1997. | Detailed Reasoning - Application to Foreign Fund B: Information available indicates that an individual does not need to reach pensionable age to open Foreign Fund B and start receiving income from Foreign Fund B. In other words, there is no age requirement to begin accessing the benefits in Foreign Fund B; an individual can access the benefits in Foreign Fund B for pre-retirement purposes. Accordingly, as funds in Foreign Fund B could be accessed pre-retirement, and taking into account the above discussions relating to the 'meaning of a provident, benefit, superannuation or retirement fund' the Foreign Fund B is not considered to be a 'superannuation fund' for Australian income tax purposes. Therefore, on the basis of the information provided, the Commissioner considers Foreign Fund B is not a 'foreign superannuation fund' as defined in subsection 995-1(1) of the ITAA 1997.