AAT, ATO, Superannuation

AAT case shows foreign transfer difficulty

AAT ATO Foreign transfer Superannuation

Conflicting superannuation and taxation rules between two countries can make foreign super transfers a difficult and complex process.

A recent case heard by the Administrative Appeals Tribunal (AAT) involving a foreign transfer of superannuation entitlements has demonstrated the complexity of these transfers between countries with different super and taxation legislation.

The case, Came v FCT [2023] AAT 3951, involved a situation in which an Australian tax resident who was previously a resident of South Africa requested a lump sum withdrawal of his entire retirement benefit from his overseas account to be transferred into his Australian SMSF.

Superannuation laws in South Africa stipulated the entitlement must first be transferred into a holding account before being received by the super fund in Australia.

After the funds were transferred, the taxpayer lodged his 2020 income tax return and did not include any amount in his assessable income in respect of the foreign superannuation payments.

The taxpayer was issued with a notice of amended assessment on audit, including the earnings of the transfer in the taxpayer’s assessable income. Subsequently, the taxpayer lodged an objection but it was disallowed. They subsequently lodged an application for review to the AAT.

Institute of Financial Professionals Australia head of superannuation and financial services Natasha Panagis noted the taxation commissioner argued the entitlements were not transferred directly between the super funds as required under section 305-80 of the Income Tax Assessment Act 1997.

“The ATO’s view was that it wasn’t a choice made under the relevant section of the act because, in a nutshell, the funds were not transferred directly from the South African fund to the Australian super Fund,” Panagis said.

“They said because it was made from the South African fund to the South African bank account and then from the South African bank account to the Australian fund, it didn’t meet the legislative requirements.”

She noted the AAT ultimately ruled the resident taxpayer was entitled to treat the applicable fund earnings associated with the transferred foreign funds as assessable income of the Australian super fund.

“In the end, the AAT overturned the commissioner’s decision. They concluded that the commissioner’s argument was not in accordance with current legislation and the AAT said if you have a read of the current legislation, it does meet those requirements,” she said.

“So this case was a win for the taxpayer. The key message here is that the rules around foreign super fund transfers are quite complex and usually do take quite a lot of time and work to transfer funds from overseas into Australia.”

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