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Edited version of your written advice
Authorisation Number: 1051494149182
Date of advice: 14 March 2019
Ruling
Subject: Foreign income
Question 1
Is the interest income from overseas included in your Australian assessable income?
Answer
Yes.
Question 2
Is the capital amount from a deceased estate included in your Australian assessable income?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2019
The scheme commenced on
1 July 2018
Relevant facts
You are an Australian resident.
A relation died. Under the will, you are the beneficiary.
The deceased had bank accounts overseas. The bank accounts earned interest income.
You have paid tax overseas on the interest income.
You wish to transfer the money from the deceased estate to your Australian bank account.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1997 Section 6-10.
Income Tax Assessment Act 1997 Section 6-15.
Income Tax Assessment Act 1936 Section 99B.
Reasons for decision
Ordinary income - interest
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year.
Interest earned from a bank account is ordinary assessable income under subsection 6-5(2) of the ITAA 1997.
In your case, you have derived interest income from overseas.
In determining liability to Australian tax for Australian residents on foreign sourced income, it is necessary to consider not only the income tax laws but also the laws under the International Tax Agreements Act 1953 (Agreements Act) and any applicable double tax agreement contained in the Australian Treaties Series (ATS).
Section 4 of the Agreements Act incorporates that Act with the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that those Acts are read as one.
Article 11 of the relevant double tax agreement discusses interest income.
Under Article 11, interest arising in country A and beneficially owned by an Australian resident may be taxed in Australia. However, that interest may also be taxed in country A, but the tax so charged shall not exceed 10% of the gross amount of the interest.
The elimination of double taxation is outlined in the relevant double tax agreement. Under this article, a credit against Australian tax payable shall be allowed for foreign tax paid (in accordance with the law of Australia) where tax has been paid under the foreign law and in accordance with the relevant double tax Agreement.
As you are an Australian resident, the foreign interest income forms part of your assessable income under subsection 6-5(2) of the ITAA 1997.
Where foreign tax has been paid in relation to this interest, a foreign income tax offset will be allowed. However, the amount of tax that may be considered for an offset is limited to 10% of the gross amount of the interest.
Corpus from a deceased estate
The distribution of the money from a bank account is regarded as a distribution of corpus or capital amount.
A distribution of corpus from a deceased estate to a beneficiary is not considered to be ordinary income and therefore not assessable under subsection 6-5(2) of the ITAA 1997.
Statutory income
Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income and are also included in assessable income.
Corpus from a deceased estate is not assessable income (subsection 99B(1) of the ITAA 1936.
Furthermore, there are no capital gains tax (CGT) consequences under the CGT provisions in relation to a distribution or entitlement of the corpus of a deceased estate.
Therefore, the transfer of money from the bank accounts is not regarded as ordinary or statutory assessable income under the ITAA 1936 or ITAA 1997.
Subsection 6-15(1) of the ITAA 1997 provides that if an amount is not ordinary or statutory income it is not assessable income. Consequently the amount transferred is not included in your assessable income when transferred to you Australian bank account.