Edited version of private advice

Authorisation Number: 1052345135922

Date of advice: 18 December 2024

Ruling

Subject: Assessable income - foreign pension

Question 1

Will the amount you received from your Savings Plan be assessable under section 99B of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer 1

Yes. You will need to include the earnings the Savings Plan made over time in your assessable income for the 20XX income year. This amount will need to be converted to Australia dollars to be included in your assessable income. You can use the actual exchange rate when the funds were transferred by the Savings Plan to your Australian account.

Question 2

Can you claim a Foreign Income Tax Offset (FITO) under Division 770 of the Income Tax Assessment Act 1997 (ITAA 1997) for the tax withheld from the Savings Plan?

Answer 2

Yes. You will be entitled to claim a FITO that corresponds to the tax paid on the proportion of the Savings Plan that is included in your assessable income under section 99B of the ITAA 1936.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

XX XX 19XX

Relevant facts and circumstances

From YYYY to YYYY you worked for an overseas company (Company A) based in Country X.

During this time you were an Australian resident for tax purposes.

While employed by Company A, both you and your employer made contributions to a Company Savings Plan (the Savings Plan).

The Savings Plan is managed by Company B.

In MM YYYY, you withdrew the entirety of the funds in your Savings Plan. The total balance of your Savings Plan was $XX.

You received a cheque from Company B for $XX.

Company B withheld $XX for the tax purposes of a foreign country.

Over the life of your Savings Plan, you and your employer contributed a total of $XX.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 99B

Income Tax Assessment Act 1936 subsection 99B(1)

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

Income Tax Assessment Act 1997 subsection 770-10(1)

Income Tax Assessment Act 1997section 770-130

Income Tax Assessment Act 1997 subsection 995-1(1)

Superannuation Industry (Supervision) Act 1993

Reasons for decision

Question 1

Summary

You will need to include the earnings the Savings Plan made over time, in your assessable income for the 20XX income year.

Detailed reasoning

Subsection 99B(1) of the ITAA 1936 provides that where a beneficiary who was an Australian resident at any time during an income year is paid an amount from a trust or has an amount of trust property applied for their benefit, that amount is to be included in the assessable income of the beneficiary in the income year it is paid.

Paragraph 99B(2)(a) of the ITAA 1936 reduces the amount to be included in assessable income by any amount that represents the corpus of the trust. This reduction, however, does not apply to amounts that are attributable to income of the trust which would have been included in the assessable income of a resident taxpayer if it had been derived by that taxpayer.

The term 'corpus' is not defined in the legislation; therefore, it takes the ordinary meaning of the term. The Macquarie Dictionary (Online edition 2019) defines 'corpus' to mean a 'principal or capital sum, as opposed to interest or income'.

Application to your circumstances

As your Savings Plan is assumed not to meet the definition of a 'foreign superannuation fund' for Australian tax purposes, it will be treated as a foreign trust.

Subsection 99B(1) of the ITAA 1936 operates to include the amount you received from your Savings Plan in your assessable income in the year it was received.

The amount deposited into the Savings Plan by you and your employer represent the corpus of the trust. Paragraph 99B(2)(a) of the ITAA 1936 operates to remove these amounts from your assessable income.

Consequently, the earnings of the Savings Plan will be included in your assessable income.

Question 2

Summary

You can claim a FITO for the amount withheld by the manager of the Savings Plan.

Detailed reasoning

Subsection 770-10(1) of the ITAA 1997 provides that a foreign income tax offset can be claimed for foreign income tax paid by a taxpayer in respect of an amount that is included in their assessable income in the income year. Note 1 to the subsection states that the offset is for the income year in which your assessable income included an amount in respect of which you paid foreign tax-even if you paid the foreign tax in another year.

Section 770-130 of the ITAA 1997 where taxpayers are entitled to a FITO when the foreign income tax has been paid by another entity. For a taxpayer to be entitled to tax relief, there must be a 'material connection' between the foreign income tax paid and the amount included in the taxpayer's assessable income.

Article 22(2) of the double tax agreement with Country X provides that Australia will allow a credit for Country X tax (other than Country X tax imposed solely by reason of citizenship or by an election by an individual under Country X domestic law to be taxed as a resident of the Country X) on income derived by a resident of Australia from sources in Country X.

Application to your circumstances

The manager of the Savings Plan has withheld and amount for Country X. You can claim a foreign income tax offset for the withheld amount as it is an amount that would have otherwise been included in your assessable income in Australia. For more information on FITO, please refer to the page Claiming a foreign income tax offset or search for 'QC 72205' on ato.gov.au.