Edited version of private advice

Authorisation Number: 1051786420087

Date of advice: 02 December 2020

Ruling

Subject: Lump sum payment from a foreign superannuation fund

Question

Will the payments received from your UK pension scheme be taxed in Australia as lump sum payments pursuant to section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. The payments in this case meet the definition of a lump sum and will be taxed in accordance with Subdivision 305-B of the ITAA 1997.

This ruling applies for the following period:

1 July 2017 to 30 June 2021

Relevant facts and circumstances

You are an Australian resident.

You currently hold benefits in a United Kingdom pension scheme (UK Fund).

On DDMMYY you commenced a drawdown of benefits from the UK Fund withdrawing a pension commencement lump sum (PCLS).

No further withdrawals have been made from the UK Fund.

You have the ability to request cash withdrawals from the UK Fund under the UK provisions.

You are considering withdrawing the entire benefit from the UK Fund and transferring the money to Australia as one payment.

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 307-65

Income Tax Assessment Act 1936 section 27H

Superannuation Industry (Supervision) Regulations 1994 subregulation 1.06(1)

Superannuation Industry (Supervision) Regulations 1994 subregulation 1.06(9A)

Case law

Tubemakers of Australia Ltd v Federal Commissioner of Taxation [1993] FCA 175

Reasons for Decision

A superannuation lump sum is a superannuation benefit that is not a superannuation income stream benefit pursuant to section 307-65 of the ITAA 1997.

The phrase 'income stream' was considered in the case of Tubemakers of Australia Ltd v Federal Commissioner of Taxation [1993] FCA 175 (Tubemakers case). In light of the Tubemakers case, the Commissioner considers the phrase 'income stream' refers to a series of periodic (including a series of annual) payments made from a member's interest in the superannuation fund over an identifiable period of time. A liability to make a single payment for one year would not constitute an income stream.

The series of periodic payments envisaged in the Tubemakers case would also need to satisfy the requirements of subregulation 1.06(1) and by extension subregulation 1.06(9A) of the Superannuation Industry (Supervision) Regulations 1994 (SISR).

Subregulation 1.06(9A) of the SISR requires amongst other things that the payment of the pension is made at least annually.

The PCLS is a tax-free payment which a UK pension scheme member can receive when they start accessing their pension benefits. It is normally 25% of the value of the pension benefits being accessed. While an initial PCLS and subsequent withdrawals relating to the pension benefit are considered pensions by the UK authority, such a classification cannot be sustained under Australian law. In this case a PCLS payment was made in August 2017 and no further withdrawals have been made from the UK Fund. The payment in question does not constitute a series of periodic payments over an identifiable period. You are also currently considering transferring the entire benefit in the UK Fund to Australia. This payment would be akin to a full commutation of a pension entitlement.

For these reasons the payments would be considered lump sum payments and should be taxed accordingly under section 305-70 of the ITAA 1997.

When a person receives a lump sum from a foreign superannuation fund more than six months after they became an Australian resident, the growth they earned 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.

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