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Edited version of private advice

Authorisation Number: 1052235733549

Date of advice: 4 April 2024

Ruling

Subject: Taxation of foreign lump sum payment

Question

Will assets transferred from the original Individual Retirement Account (original IRA) to your Inherited Individual Retirement Account (Inherited IRA) represent corpus under subsection 99B(2)(a) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.As a capital sum received through inheritance, the initial amount transferred into your Inherited IRA represents corpus and is therefore excluded from your assessable income.

Question

Will any increase in value of your Inherited IRA be subject to tax under subsection 99B(1) of ITAA 1936?

Answer

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

This ruling applies for the following period:

Year ending 30 June 20YY

The scheme commenced on:

1 July 20YY

Relevant facts and circumstances

You are a tax resident of Australia.

Your parent, a Country A citizen and non-tax resident of Australia, passed away in Month 20YY.

The executor of your parent's estate is in Country A and is not a tax resident of Australia.

Your parent had an original Individual Retirement Account (original IRA) managed by a financial services organisation as trustee (the trustee).

You are one of two primary designated beneficiaries of the original IRA.

You had no beneficial ownership in the original IRA before your parent's passing.

A separate IRA will be established for you by the trustee, referred to as an Inherited IRA.

The assets in the original IRA will be transferred to your Inherited IRA and held on trust.

The assets to be transferred comprise cash, bonds, shares, and interests in mutual funds.

Shortly after the transfer you will instruct the trustee to sell the assets. You will then make a full withdrawal of the proceeds and repatriate the funds to Australia within the income year ending 30 June 20YY.

Assumptions

The original IRA and the inherited IRA are not foreign superannuation funds.

The inherited IRA is not a beneficiary of the original IRA.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 99B

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

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