Edited version of private advice

Authorisation Number: 1052011222270

Date of advice: 26 July 2022

Ruling

Subject: Foreign pension fund

Question 1

Does the inheritance deposited into your Inherited Individual Retirement Account (IRA) represent the corpus of the trust and therefore will this sum be excluded from your assessable income when distributed to you in accordance with paragraph 99B(2)(a) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Question 2

Will any distributed income and capital gains that have accrued in the Inherited IRA from the time you became beneficially entitled to the funds be included in your assessable income according to the provisions of section 99B of the ITAA 1936?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a dual citizen of Country A and Australia.

You are an Australian resident for taxation purposes.

Your parent was a citizen and resident of Country A for taxation purposes.

Your parent died leaving an Individual Retirement Account (IRA), which is a pension fund account, to be distributed to yourself and your three siblings.

In 20XX 25% of the assets from your parent's IRA were transferred into an "Inherited IRA" account in your name held on trust by a trustee, of which you are the sole beneficiary.

The value of your share of your parent's IRA was around $xxx at the time it was transferred into your Inherited IRA account.

The value of the assets in your Inherited IRA has grown in value.

You intended to withdraw the entire balance of the Inherited IRA as a lump sum in the 20XX income year.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 99B

Income Tax Assessment Act 1936 paragraph 99B(2)(a)

Reasons for decision

Section 99B of the ITAA 1936 deals with the receipt of trust income that has not previously been subject to tax in Australia.

Subsection 99B(1) of the ITAA 1936 provides that where, during a year of income, a beneficiary who was a resident at any time during the year is paid a distribution from a trust, or has an amount of trust property applied for their benefit, that 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 under subsection 99B(1) is not to include any amount that represents either:

a)    corpus of the trust estate (except to the extent to which it is attributable to amounts derived by the trust estate that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer of a year of income);

b)    an amount that, if it had been derived by a taxpayer being a resident, would not have been included in the assessable income of that taxpayer of a year of income;

ba) an amount that is non-assessable non-exempt income of the beneficiary because of section 802-17 of the Income Tax Assessment Act 1997;

c)    an amount:

                      i.        that is or has been included in the assessable income of the beneficiary in pursuance of section 97; or

                     ii.        in respect of which the trustee of the trust estate is or has been assessed and liable to pay tax in pursuance of section 98, 99 or 99A; or

                   iii.        that is reasonably attributable to a part of the net income of another trust estate in respect of which the trustee of the other trust estate is assessed and is liable to pay tax under subsection 98(4);

d)    an amount that is or has been included in the assessable income of any taxpayer (other than a company) under section 102AAZD;

e)    if the beneficiary is a company - an amount that is or has been included in the assessable income of the beneficiary under section 102AAZD.

The Macquarie Dictionary (Online edition 2019) defines 'corpus' to mean a 'principal or capital sum, as opposed to interest or income'.

In your case, the initial amount you received from your parent's IRA into your Inherited IRA represents the trust's corpus as it is a capital sum received by you as an inheritance from your parent.

As the trust's corpus, this amount is excluded from your assessable income in accordance with paragraph 99(2)(b) of the ITAA 1936.

Any amount of distributed income or capital gains which have accrued in your Inherited IRA since the receipt of the inheritance will be included in your assessable income.

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