Superannuation, retirement & employment termination: Lump sum payment from a foreign superannuation fund

Are payments made from a foreign superannuation fund to a taxpayer resident in Australia included in the taxpayer's assessable income?

Yes. Payments made from a foreign superannuation fund are included in the taxpayer's assessable income by virtue of section 27CAA of the Income Tax Assessment Act 1936 (ITAA 1936) providing the payment is made more than 6 months after the taxpayer became a resident of Australia (see definition of 'exempt resident foreign termination payment' in subsection 27A(1) of the ITAA 1936.

The taxpayer works in another country and is a member of a provident fund. In the future the taxpayer intends to leave the other country and become an Australian resident. At that time the benefit in the provident fund will be due for payment. The taxpayer plans to transfer the benefit into a superannuation fund that is resident in the other country.

There is no Double Taxation Agreement which currently applies to income derived by Australian residents from sources in the other country.

Based on the facts, the foreign superannuation fund would be classified as an 'eligible non-resident non complying superannuation fund' (subsection 27A(1) of the ITAA 1936). [History note: The following two paragraphs were deleted on 26 March 2002 as they do not indicate the ATO view: If no other provisions had operation, the general income provision, subsection 25(1) of the ITAA 36, would therefore operate to assess the taxpayer on income from all sources, including the benefit paid by the foreign superannuation fund. However, the operation of section 27CAA of the ITAA 1936, which deals with the assessability of payments made from an 'eligible non resident non complying superannuation fund', takes precedence over the operation of the general income provision, subsection 25(1) of the ITAA 1936.]

The general intention of section 27CAA of the ITAA 1936 is to include in the taxpayer's assessable income any amounts which accrue in a 'non-resident superannuation fund' which are attributable to the period that the taxpayer is a resident of Australia.

If a taxpayer receives a lump sum payment from an 'eligible non-resident non complying superannuation fund' and the amount that was 'properly payable' (that is the taxpayer's vested benefit) on the day on which the relevant payment was made exceeds: 'accumulated entitlements' (the amount properly payable to the taxpayer out of the fund on the 'relevant day', being the day immediately before the day the taxpayer became a resident of Australia or became a member of the fund, whichever is later) plus, 'additional contributions' (amount paid by the taxpayer or the taxpayer's employer on or after the relevant day)

then that excess is included in the taxpayer's assessable income.

However, section 27CAA of the ITAA 1936 does not apply to 'exempt non-resident foreign termination payments'. An 'exempt non resident foreign termination payment' is defined in subsection 27A(1) of the ITAA 1936 to include a payment made from an 'eligible non-resident non-complying superannuation fund' within 6 months after the taxpayer became a resident of Australia. Therefore, where an amount is paid from an 'eligible non-resident non-complying superannuation fund' within this period, it will be exempt from tax under section 27CD of the ITAA 1936.

If the payment from the foreign superannuation fund is made within six months of the taxpayer becoming a resident of Australia, the payment will be exempt from tax in Australia (section 27CD of the ITAA 1936). If the payment is made after the taxpayer has been a resident for more than six months, then any part of the payment which exceeds the accumulated entitlements plus additional contributions will be included in the taxpayer's assessable income (section 27CAA (ITAA 1936)).