Edited version of your written advice

Authorisation Number: 1012690968426

Ruling

Subject: Assessable income

Question 1

Is income accumulated in your account included in your assessable income?

Answer

No.

Question 2

Are withdrawals from an account treated as assessable income?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

Year ending 30 June 2017

The scheme commences on:

1 July 2013

Relevant facts and circumstances

You inherited a retirement account from your relative's overseas estate.

You have dual citizenship.

You are considered an Australian resident for taxation purposes.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 99B(1)

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

Income Tax Assessment Act 1936 subsection 481(3)

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 subsection 6-10(4)

Income Tax Assessment Act 1997 section 10-5

Reasons for decision

Question 1 and 2

Before we can consider the tax consequences of proceeds from the IRA, we must first determine whether an IRA is considered a foreign trust or a foreign superannuation fund.

A foreign trust is defined in subsection 481(3) of the ITAA 1936 as a trust which is not an Australian trust, and which did not result from a will or an intestacy in relation to the estate of a deceased person.

You have an overseas retirement account, which is a foreign trust as defined in subsection 481(3) of the ITAA 1936 and is therefore a foreign investment fund (FIF). The account is not a superannuation fund for the purposes of the ITAA 1997.

Repeal of FIF measures

On 14 July 2010, the FIF measures were repealed and do not apply from the 2010-11 income year onwards.

If you have an interest in a FIF, you will be subject to the general tax rules applicable to your circumstances - for example, the general tax rules relating to trust income.

Assessability of trust income

Section 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes statutory income amounts that are not ordinary income but are included in assessable income by another provision.

Subsection 6-10(4) of the ITAA 1997 provides that for an Australian resident, your assessable income includes statutory income derived from all sources, whether in or out of Australia, during the income year.

Section 10-5 of the ITAA 1997 lists certain statutory amounts that form part of assessable income. Included in this list is income derived pursuant to section 99B of the Income Tax Assessment Act 1936 (ITAA 1936).

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, the amount is to be included in the assessable income of the beneficiary.

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 (1) is not to include any amount that represents either:

• the corpus of the trust (paragraph 99B(2)(a) of the ITAA 1936)

• amounts that would not have been included in the assessable income of a resident taxpayer (paragraph 99B(2)(b) of the ITAA 1936), and

• amounts previously included in the beneficiaries income under section 97 of the ITAA 1936 (paragraph 99B(2)(c) of the ITAA1936).

Paragraph 99B(2)(a) of the ITAA 1936 requires regard to be had to whether or not the amount derived by a trust estate was of a kind that would have been assessable if derived by a resident taxpayer. Thus, for example, if, in accordance with the terms of the trust, income were accumulated and added to corpus and the capitalised amount is subsequently paid or applied for the benefit of a beneficiary, the beneficiary would be assessable on the amount provided (subject to other paragraphs of subsection 99B(2) of the ITAA 1936).

In this case, until you withdraw from the account, no income has been paid to you or applied for your benefit. Therefore, any income that is accumulated in the account is not included in your assessable income.

However, withdrawn amounts are similar to a distribution from a trust, any amounts distributed (withdrawn) or credited from your account are assessable under subsection 99B(1) of the ITAA 1936.