Edited version of private advice

Authorisation Number: 1052257996631

Date of advice: 2 December 2024

Ruling

Subject: Foreign deceased estate

Issue 1 - Distribution from foreign deceased estate

Question 1

Will the distribution you receive from the foreign deceased Estate (the Estate) which represents the market value of the Deceased's assets as at the date of the deceased's death wholly reduce the amount included under subsection 99B(1) from your assessable income in accordance with paragraph 99B(2)(a) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes. The distribution you receive represents corpus and will not include any amount that would be attributable to amounts derived by the Trust which would be included in the assessable income of a hypothetical resident taxpayer. Therefore, the amount included in your assessable income by subsection 99B(1) of the ITAA 1936 will be reduced by the corpus amount under paragraph 99B(2)(a) of the ITAA 1936.

Question 2

Will the distribution you receive from the foreign deceased Estate, which represents earnings such as capital gains and income that has accrued from the date of the deceased's death, be included in your assessable income in accordance with subsection 99B(1) of ITAA 1936?

Answer

Yes. The distribution received will be included in your assessable income under subsection 99B(1) of the ITAA 1936.

Issue 2 - Distribution from the Inherited Individual Retirement Account (IRA)

Question 3

Will the initial amount rolled over into your 'Inherited Individual Retirement Account (IRA)', wholly reduce the amount included under subsection 99B(1) from your assessable income when withdrawn in accordance with paragraph 99B(2)(a) of the ITAA 1936?

Answer

Yes. The amount you receive represents corpus and will not include any amount that would be attributable to amounts derived by the foreign trust (which the IRA is considered to be) which would be included in the assessable income of a hypothetical resident taxpayer. Therefore, the amount included in your assessable income by subsection 99B(1) of the ITAA 1936 will be reduced by the corpus amount under paragraph 99B(2)(a) of the ITAA 1936.

Question 4

Will a cash withdrawal from the 'Inherited IRA' which represents capital gains and earnings that has accrued in the account from the date of the deceased's death be included in your assessable income in accordance with subsection 99B(1) of the ITAA 1936?

Answer

Yes. The amount received will be included in your assessable income under subsection 99B(1) of the ITAA 1936.

Question 5

Will the earnings of the 'Inherited IRA' be included in your assessable income when added to the account?

Answer

No. The earnings of the 'Inherited IRA' will be included in your assessable income in the income year you receive the amount from the IRA.

Issue 3 - Distributions from the foreign life insurance policy

Question 6

Will the lump sum death benefit received from a foreign life insurance policy be wholly reduced from the amount included in your assessable income under subsection 99B(1) of the ITAA 1936 in accordance with paragraph 99B(2)(b) of ITAA 1936?

Answer

Yes. A bonus received by you as a resident beneficiary of a non-resident trust Estate from a foreign life assurance policy held for over 10 years and held by the Estate is an amount that, if it had been derived by a taxpayer being a resident, would not have been included in the assessable income of that taxpayer. Therefore, the amount included in your assessable income under subsection 99B(1) of the ITAA 1936 will be wholly reduced by the amount that represents the lump sum death benefit under paragraph 99B(2)(b).

Issue 4 - Distribution of assets inherited directly by the beneficiary

Question 7

Is the cost base of the shares you inherited directly from the Deceased, to be the market value as at the date the deceased person died, in accordance with subsection 128-15(4) of the ITAA 1997?

Answer

Yes. The first element of the cost base of the shares you inherited directly from the Deceased will be the market value as at the date of the deceased person died, in accordance with item 3A of the table in subsection 128-15(4) of the ITAA 1997.

Question 8

Is the acquisition date of the shares you inherited, for Capital Gains Tax (CGT) discount purposes, the date the Deceased originally acquired them?

Answer

Yes. Item 4 in the table in section 115-30 of the ITAA 1997 provides that you are taken to have acquired the asset when the deceased acquired the asset for the purpose of calculating the CGT discount.

Issue 5 - Foreign Income Tax Offset (FITO)

Question 9

Will you be eligible to claim a Foreign Income Tax Offset (FITO) for foreign income tax paid by the foreign deceased Estate in relation to the capital gains and earnings which has accrued on the original amount paid to you as a distribution and has been included in the assessable income of the Estate?

Answer

Yes. Subsection 770-130(1) of the ITAA 1997 provides that a FITO can be claimed for foreign income tax paid in respect of an amount that is included in your assessable income and that tax was paid by someone else. In your case, amounts of foreign income tax paid by the Executor of the Estate in respect of your portion of capital gains and earnings accrued on the original amount will be eligible for FITO.

This ruling applies for the following periods:

1 July 2023 to 30 June 2033

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Your late parent (the Deceased) passed away on XX/XX/XX (DOD).

The Deceased immigrated to another country in the 19XX's and lived there until they passed away.

You are an equal share, primary beneficiary in the Deceased Estate.

You have 2 siblings who are also equal share, primary beneficiaries to the Estate. Both reside in other countries one is 'Executrix' of the Estate.

You immigrated to Australia in XXXX and are an Australian resident for tax purposes and an Australian citizen.

The Will expressly states the 'primary beneficiaries' are the Deceased's children, and there is provision for secondary beneficiaries.

The Estate is a 'Foreign Deceased Estate', and a non-resident foreign trust for the purposes of Australian Taxation Laws.

You are going to receive the relevant distributions between XXXX and the end of this ruling period.

The distribution amounts you are going to receive include amounts that have capital gains.

The shares inherited directly from the Deceased are not taxable Australian property.

The shares you inherited directly from the Deceased are taken to have been acquired after 20 September 1985.

Assets of the Estate have been dealt with by the Executrix in two parts:

1)    Distributions made directly to the beneficiaries.

2)    Distributions held in the Estate and managed by the Executrix (for various reasons) until distribution could be made to the beneficiaries.

Assets of the Estate include:

•         Cash at bank

•         Brokerage accounts

•         Mutual fund accounts

•         Traditional IRA accounts

•         Roth IRA accounts

•         Life insurance policy

•         Real property

•         Motor vehicle

Some of the deceased's assets were transferred directly to 'directly nominated beneficiary's' including IRA accounts and the proceeds of the life insurance policy that the deceased held for more than 10 years.

Assets not transferred directly to the nominated beneficiary's were managed in the Estate. These assets included cash at bank, real property, a motor vehicle, brokerage accounts and investment funds.

The balance of the shares not originally directly transferred to beneficiaries has been liquidated by the Executrix and will be distributed as cash to the beneficiaries from the Estate.

For all accounts, any dividends received, and capital gains made while in the Estate will be included in and taxed as assessable income of the Estate in the foreign country.

Assumptions

None of the IRA's meet the definition of a foreign superannuation fund under section 995-1 of ITAA 1997.

The distribution from the deceased estate will include, but will not be limited to amounts attributable to:

a)    cash from bank accounts.

b)    proceeds from the sale of the main residence and the motor vehicle.

c)    proceeds from the sale of mutual fund investments that includes capital gains made on sale.

d)    proceeds from the sale of share brokerage accounts.

The distribution from the 'Inherited IRA' will include, but will not be limited to amounts attributable to:

a)    cash.

b)    distribution of shares.

c)    dividends and interest income.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 115-30

Income Tax Assessment Act 1997 subsection 128-15(4)

Income Tax Assessment Act 1997 subsection 770-130(1)

Income Tax Assessment Act 1936 section 99B(1)

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

Income Tax Assessment Act 1936 subsection 99B(2)(b)