Edited version of private advice

Authorisation Number: 1052222936081

Date of advice: 26 February 2024

Ruling

Subject: Interest charge - section 102AAM

Question 1

Will an interest charge under section 102AAM of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the taxable component (accumulated earnings) of the Taxpayer's superannuation plan, since the inception of his plan, if he made a withdrawal in the near future?

Answer

Yes.

Question 2

Will an interest charge under section 102AAM of ITAA 1936 apply to the non-taxable component (employer and employee contributions) of the Taxpayer's superannuation plan, since the inception of his plan, if he made a withdrawal in the near future?

Answer

No.

This ruling applies for the following period:

1 July 2023 to 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

The Taxpayer has a superannuation plan (the plan) administered in Country A. The plan is a foreign investment trust administered by a foreign corporate body.

The components of the Taxpayer's retirement benefits (since inception to xx/xx/20xx) consist of:

•         Employer and employee contributions: $X

•         Market growth: $X

•         Total market value: $X.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 99B

Income Tax Assessment Act 1936 section 102AAM

Reasons for decision

Section 102AAM is located in Division 6AAA of the ITAA 1936. If section 99B of ITAA 1936 includes an amount in assessable income, section 102AAM will also apply to impose an additional interest charge on the taxpayer. The interest charge imposed by section 102AAM is intended to compensate for the deferral of Australian tax that occurred as a result of accumulating the income or profits in the trust. The Commissioner has no discretion to remit or reduce the additional tax imposed by section 102AAM.

The section 102AAM interest charge may apply to a distribution of profits from a non-resident trust estate to the extent the distribution was made from profits that:

• are referable to eligible designated concession income derived in an income year when the trust was a resident of a listed country, or
• were not subject to tax in a listed country and were derived in an income year when the trust was a resident of an unlisted country.

Country A is a listed country under regulation 19 of the Income Tax Assessment (1936) Act Regulations 2015.

In your case:

•         The proposed future withdrawal from the Taxpayer's plan on the accumulated earnings since the inception of the fund will be subject to an interest charge under section 102AAM.

•         The proposed future withdrawal from the Taxpayer's plan on the corpus since the inception of the fund will not be subject to an interest charge under section 102AAM.

Calculation of the interest charge

The interest charge will cease to accrue on the last day of the income year in which the distributed amount is included in the assessable income of the beneficiary.

The amount on which interest is payable is worked out using the following formula:

(Distributed amount × applicable rate of tax) − FITO

The distributed amount is the amount of the distribution that is included in your assessable income under section 99B of the ITAA 1936. This amount is grossed up for any foreign tax you can claim on that share.

The applicable rate of tax is the maximum marginal rate that applies for the income year of the taxpayer in which the trust distribution is received.

For amounts paid out of income or profits accumulated earlier than the 1990-91 income year, the interest period begins at the start of the 1990-91 income year. For later income years it begins from the start of the income year following the income year it was accumulated. The interest varies depending on the period but from 14 September 2006 it is the base interest rate. For the current quarter (Jan-March 2024) it is 4.38%.

You are required to complete the section 102AAM calculation and include the amount on an additional information schedule when lodging the relevant income tax return.

For further information about how to do this calculation see Chapter 2 "Transferor trust and related measures" (Part 2, Section 2) of the 'Foreign income return form guide' available at www.ato.gov.au by searching for QC 66597. Alternatively, search for ATO QC 66597 via Google or another search engine. After you lodge, the ATO will confirm that calculation and the amount payable.

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