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Applicable fund earnings

Section: 10.5

Applicable fund earnings are generally the earnings on the foreign super fund while the person was an Australian resident.

There are two methods for calculating applicable fund earnings according to the member's pattern of Australian tax residency.

Method 1 - If the member has been an Australian resident at all times

|--------------------------------------- F  ------------------------------------------------------------------------T  -----------------------------> (time)

                                                       |________________ relevant period_______________|                                 

F = date of fund membership with foreign super fund

T = date of transfer of foreign super fund to Australian super fund

Relevant period is from date F to date T.

The member is resident of Australia during all of period F to T.

The applicable fund earnings will be calculated as:

Gross amount of the foreign super transfer (before any foreign tax)

less contributions made to the foreign super fund in the relevant period

less transfers from other foreign super funds into the foreign super fund in the relevant period

plus any previously exempt fund earnings

Method 2 - If the member has not been an Australian resident at all times

|---------------------------------- F --------------------------- R --------------------------------------------------------- T ------------------> (time)

                                                                                           |________ relevant period ______________|

F = date of fund membership with foreign super fund

T = date of transfer of foreign super fund to Australian super fund
R = date of Australian residency

Relevant period is from date R to date T.

The member is not a resident of Australia during all of the period F to T.

The applicable fund earnings will be calculated as:

Gross amount of the foreign super transfer (before any foreign tax)

less amount of foreign super fund vested in the member just before date R
less contributions made to the foreign super fund in the relevant period
less transfers from other foreign super funds into the foreign super fund in the relevant period
multiplied by the proportion of total days during relevant period when member was an Australian resident
plus any previously exempt fund earnings

Previously exempt fund earnings 

Fund earnings which are transferred to another overseas fund instead of to Australia are exempt until they are eventually transferred into Australia. These 'previously
exempt amounts' are only included in assessable income in Australia upon transfer of the fund into Australia.

Using exchange rates to calculate applicable fund earnings

The ATO has stated in ID 2015/7 that when calculating applicable fund earnings, the appropriate exchange rate to use in calculating the main components of applicable
fund earnings is the exchange rate on the date the foreign super lump sum or transfer is received.

For example, George had an interest in a UK pension scheme. He became an Australian resident for tax purposes on 1 July 1999 and his vested benefits at the time were
£100,000. He transferred his balance to an Australian super fund on 1 April 2015, at which time his transfer value was £150,000. At 1 April 2015 the exchange rate
was AUD$1 = GBP£0.5140 and this is the only exchange rate that should be used.

George's applicable fund earnings would be calculated as follows:

1. Translate the amount of foreign superannuation lump sum received or transferred
using the exchange rate at the date of transfer:
£150,000 ÷ 0.5140 = $291,829

2. Translate the amount of vested benefits George had just before he became an
Australian resident using the exchange rate at the date of transfer:
£100,000 ÷ 0.5140 = $194,553

3. The applicable fund earnings is then calculated as the difference between
the two above amounts:
$291,829 - $194,553 = $97,276.

Last modified: Tuesday, May 2, 2017