Overseas Inheritance - deceased primary residence & superannuation accounts

 Author: nadrim(Newbie)Newbie

16 Apr 2024

Hi Caro, I wanted to follow up on your advice above. I am likely to inherit a lump sum from a UK superannuation fund following the death of my dad (I confirmed that it is recognised by HMRC as a qualifying UK pension and meets the Australian definition of a foreign superannuation fund so the rules of 99B and foreign trusts do not apply). I am a lay person but from articles I read normally lump sums from a foreign super are taxable under 305-70 of the Income Tax Assessment Act 1997 (where these lumps sums are not inherited, for example if I took a lump sum from my own UK super fund). Where you take a lump sum from your own foreign super, the amount received is taxable (when a person has been Australian tax resident for more than 6 months) on any increase in value of the foreign super fund at the date of the lump sum transfer and the value of the fund the day before they became Australian resident (taxable on the applicable fund earnings).

But this legislation, in my view, was designed to deal with receiving a lump sum from your own overseas super rather than an inherited overseas super. In the case of my dad, he had never been Australian resident and has always been UK resident. So its impossible/difficult to apply the rules in section 305-70. Potentially it could be argued that either the applicable fund earnings are nil or that I have to put myself in "dad's place" and consider the value of the increase of his fund (as if it were always my fund) from the day I became Australian resident to the day I received the lump sum and tax that. This would give a different tax outcome to saying an inherited overseas tax super is tax free.

Is the correct Australian tax analysis to refer to https://community.ato.gov.au/s/article/a079s0000009GnFAAU/tax-on-gifts-and-inheritances and that the money I receive from my dad's super is cash as you described above? It has been mentioned a number of times in the ATO communities that a lump sum from a qualifying inherited super is non taxable and is merely the receipt of non taxable cash. So I hope that this is the correct analysis and that section 305-70 would not apply? It would certainly make a lot more sense to follow your analysis above and from other ATO community responders on this matter.

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