Private ruling: Lump sum payment from a foreign fund
Published: January 2014
Ruling period: 2013-14 income year
Date scheme commenced: 1 July 2013.

Ruling: Q1: Will any part of the benefit to be transferred from an overseas pension fund to a superannuation fund in Australia be assessable as applicable fund earnings under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Will you be entitled to choose under section 305-80 of the ITAA 1997 to include all or part of the applicable fund earnings (if any) in the assessable income of the Australian superannuation fund? | A2: Not applicable.

Relevant facts and circumstances: 1. You held an interest in an overseas pension fund (the Pension Fund), a foreign superannuation fund as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997). 2. The benefits of the fund are indexed in line with a national price index (index). 3. You advised that the date of residency was residency date. 4. You cannot provide the value of the lump sum payment received from the Pension Plan on the day immediately before your residency date and have agreed to use the index to estimate this amount. Based on this, the value of the lump sum on the day before residency date is estimated and converted to Australian dollars at the exchange rate of on that day. 5. There have been no contributions to the Pension Fund since you migrated to Australia. 6. There have been no transfers into the Pension Fund from other foreign pension schemes by you since becoming a resident of Australia. 7. In late 2013 you transferred your Pension Fund in full to a complying Australian superannuation fund. The lump sum payment was converted by the Australian fund to Australian dollars. 8. You no longer hold an interest in the Pension Fund

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 295-95(2) | Income Tax Assessment Act 1997 Section 305-70 | Income Tax Assessment Act 1997 Subsection 305-70(1) | Income Tax Assessment Act 1997 Section 305-75 | Income Tax Assessment Act 1997 Subsection 305-75(2) | Income Tax Assessment Act 1997 Subsection 305-75 (3) | Income Tax Assessment Act 1997 Subsection 305-75 (5) | Income Tax Assessment Act 1997 Subsection 305-75 (6) | Income Tax Assessment Act 1997 Section 305-80 | Income Tax Assessment Act 1997 subsection 305-80(1) | Income Tax Assessment Act 1997 subsection 305-80(2) | Income Tax Assessment Act 1997 subsection 305-80(3) | Income Tax Assessment Act 1997 Subsection 306-70 | Income Tax Assessment Act 1997 Subsection 960-50(1) | Income Tax Assessment Act 1997 Subsection 960-50(4) | 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: 1. The applicable fund earnings in relation to the lump sum payment is zero. Therefore, no part of the payment received from the Pension Fund will be included in your assessable income for the 2013-14 income year. | Detailed Reasoning - Lump sum payments transferred from foreign superannuation funds: 2. The applicable fund earnings in relation to a lump sum payment from a foreign superannuation fund , that is received more than six months after a person has become an Australian resident, will be assessable under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997). 3. The applicable fund earnings is subject to tax at the person's marginal rate. The remainder of the lump sum payment is not assessable income and is not exempt income. 4. The applicable fund earnings is the amount worked out under either subsection 305-75(2) or (3) of the ITAA 1997. Subsection 305-75(2) applies where the person was an Australian resident at all times during the period to which the lump sum relates. Subsection 305-75(3) applies where the person was not an Australian resident at all times during the period to which the lump sum relates. | Detailed Reasoning - Applicable fund earnings: 5. You received the lump sum payment more than six months after you became an Australian resident. Therefore, section 305-70 applies to include the 'applicable fund earnings' in your assessable income. 6. The 'applicable fund earnings' are worked out under section 305-75. As mentioned earlier, subsection 305-75(3) applies where the person becomes an Australian resident after the start of the period to which the lump sum relates. 7. 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, 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 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 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). 8. In short, you are assessed only on the income earned (the accretion) in respect of the Pension Fund less any contributions you made since you became a resident of Australia. Further, any amounts representative of earnings during periods of non-residency, and transfers into the paying fund do not form part of the taxable amount when the overseas benefit is paid. | Detailed Reasoning - Foreign currency conversion: 9. Subsection 960-50(1) of the ITAA 1997 states that an amount in a foreign currency is to be translated into Australian dollars (A$). The applicable fund earnings is the result of a calculation from two other amounts and subsection 960-50(4) states that when applying section 960-50 to amounts that are elements in the calculation of another amount you need to: (a) first, translate any amounts that are elements in the calculation of other amounts (except special accrual amounts); and (b) then, calculate the other amounts. 10. All exchange rates are published on the ATO's website. | Detailed Reasoning - Amounts to be used in calculation: 11. The benefit in the Pension Fund on the day before you became a resident of Australia was [amount]. This is converted into Australian dollars at the exchange rate that applied on that day. 12. From the facts provided no contributions have been made to the Pension Fund since you migrated to Australia. There have been no transfers into the Pension Fund from other foreign pension schemes by you since becoming a resident of Australia. 13. In late 2013, a one off lump sum payment was made from the Pension Fund to your Australian superannuation fund. Therefore this is the amount vested in you when the lump sum was paid. This amount was converted into Australian dollars by your Australian fund. 14. 'The period' for the purposes of paragraph 305-75(3)(c) of the ITAA 1997 commences on the day on which the person first became an Australian resident and ceases on the day the lump sum is paid. You were a resident for the whole of that period. Therefore, the Australian resident days and the total days are the same, and so the proportion to be used in the calculation is 1. 15. There are no previously exempt fund earnings in relation to the lump sum. 16. Applying subsection 305-75(3) of the ITAA 1997 to your circumstances, the amounts to be used in calculating the applicable fund earnings for the Pension Fund are as follows: 305-75(3)(a)(i) $ [amount] 305-75(3)(a)(ii) Nil 305-75(3)(a)(iii) Nil 305-75(3)(b) $ [amount] 305-75(3)(c) 1 305-75(3)(d) Nil | Detailed Reasoning - Calculation of the assessable amount of the payment from Pension Fund: 17. In accordance with subsection 305-75(3) of the ITAA 1997 the amounts determined at sub-paragraphs 305-75(3)(a)(i), (ii) and (iii) are added: $[amount] + nil + nil = $[amount] 18. This total is then subtracted from the amount determined under paragraph 305-75(3)(b): $[amount] less $[amount] is -$[amount] 19. This figure is multiplied by the proportion of the total days determined under paragraph 305-75(3)(c): -$[amount] x 1 = -$[amount] 20 .To this figure we add the amounts determined under paragraph 305-75(3)(d): -$[amount] + nil = -$[amount] (cents ignored) 21. As the amount is less than zero, no amount of the lump sum payment will be included as assessable 'applicable fund earnings' in the 2013-14 income year. Further, it is not necessary to consider your entitlement to choose whether to include all or part of the applicable fund earnings in the assessable income of your Australian fund.