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Edited version of private advice
Authorisation Number: 1051558091470
Date of advice: 6 August 2019
Subject: Lump sum payment from a foreign fund
Are all of the earnings on the account assessable under section 99B of the Income Tax Assessment Act 1936 (ITAA 1936)?
Is the whole amount rolled over from the Fund A to the account considered corpus?
This ruling applies for the following period:
Year ending 30 June 20XX
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
You are a resident of Australia for taxation purposes.
You are a permanent resident of Australia.
You worked in the overseas country for XX years.
You and your employer made contributions to your pension account.
In 20XX, while a foreign resident, you rolled a portion of your Fund A into an account.
The accounts do not meet the definition of a 'Foreign Superannuation fund' under Australian tax law as they allow for pre-retirement withdrawals.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 99B
Income Tax Assessment Act 1936 subsection 99B(1)
Income Tax Assessment Act 1936 paragraph 99B(2)(a)
Income Tax Assessment Act 1997 subsection 995-1(1)
Reasons for decision
Section 99B of the ITAA 1936 deals with the receipt of trust income 'not previously subject to tax' in Australia and applies where an Australian resident taxpayer receives a lump sum payment from a foreign retirement or investment fund. Section 99B takes precedence over section 97 of the ITAA 1936 in assessing these types of payments.
Subsection 99B(1) of the ITAA 1936 provides that where an amount, being property of a trust estate, is paid to, or applied for the benefit of a beneficiary of the trust who was a resident at any time during the year of income, the amount is to be included in the assessable income of the beneficiary.
However, subsection 99B(2) of the ITAA 1936 modifies the rule in subsection 99B(1) and has the effect that the amount to be included in assessable income is not to include any amount that represents the corpus of the trust, but not an amount that is attributable to income of the trust which would have been included in the assessable income of a resident taxpayer if it had been derived by that taxpayer.
Consequently, the assessable amount is the total amount received less any amounts deposited to the fund (the corpus) by the taxpayer, or on their behalf. The rule is that the taxpayer is taxed only on the earnings of the investment on withdrawal, not on the corpus returned to them. Any earnings in the funds are only assessable in Australia on withdrawal from the funds.
The whole amount that was rolled into the account from the Fund A fund would not be corpus in the account. You would need to pay tax on the interest amount from the Fund A fund when it was withdrawn from the IRA account.
The whole amount of the earnings is assessable in Australia not just the earnings that accrued from when you became a resident of Australia for taxation purposes.
This is consistent with the Commissioners view in ATO ID 2011/93.
The earnings must be included in your Australian tax return in the year you withdraw the lump sum amount from the fund.