Edited version of your written advice

Authorisation Number: 1012709103046

Ruling

Subject: Income

Question

Will a portion of the proposed lump sum payment from the Fund be included in your assessable income?

Answer

Yes.

This ruling applies for the following period

Year ending 30 June 2015

The scheme commences on

1 July 2014

Relevant facts and circumstances

You migrated to Australia.

You are less than 55 years of age and have a permanent resident visa.

You hold an interest in an overseas Fund.

You have applied a portion of your interests in the Fund to purchase a primary place of residence, pay for mortgage repayments and for housing insurance.

You sold the residence and deposited the proceeds and the housing insurance into the Fund.

You intend to redeem your interests in the Fund in the form of one aggregated lump sum payment.

You have not made any contributions to the Fund since you became a resident of Australia, apart from the proceeds from the sale of the residence and the housing insurance.

No amounts have been transferred into the Fund from other foreign superannuation funds after you became a resident of Australia.

The Fund allows for access of benefits prior to retirement age for reasons such as healthcare and housing needs.

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

Where a lump sum payment from a foreign superannuation fund is received more than six months after a person has become an Australian resident, the applicable fund earnings in relation to that lump sum payment will be assessable under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997).

Before determining whether an amount is assessable under section 305-70 of the ITAA 1997, it is necessary to ascertain whether the payment is being made from a foreign superannuation fund. If the entity making the payment is not a foreign superannuation fund then section 305-70 will not have any application.

The Fund satisfies some of the requirements of a foreign superannuation fund as it is established outside of Australia and the central management and control is outside of Australia. However, the fund is not exclusively a provident, benefit or superannuation fund because it does not provide benefits for the specific future purposes of the individual's retirement. Members can use the benefits for other purposes, such as private health cover, purchasing a house or for education. The fund is not a bona fide superannuation fund because its sole purpose is not to provide benefits upon death, invalidity or retirement.

The Fund is a foreign trust as defined in subsection 481(3) of the ITAA 1936 and is therefore a foreign investment fund (FIF). The Fund is not a superannuation fund for the purposes of the ITAA 1997 and the ITAA 1936 as it allows for withdrawals for pre-retirement purposes. Therefore the Fund is not established solely for the provision of retirement benefits.

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 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 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).

Application to your circumstances

In this case, you intend to redeem your interests in the fund as an aggregated lump sum payment. A withdrawal of an amount that represents amounts deposited by you would come within paragraph 99B(2)(a) of the ITAA 1936. Distributions, to the extent that they come within subsection 99B(2) of the ITAA 1936, would be excluded from amounts assessable under subsection 99B(1) of the ITAA 1936.

However, the income accumulated in the Fund (paid to you as a resident taxpayer) that is normally taxable in Australia and had not been previously subjected to tax in Australia would be assessable to you under subsection 99B(1) of the ITAA 1936.