Edited version of private advice

Authorisation Number: 1052356855271

Date of advice: 05 March 2025

Ruling

Subject: Application of section 102AAM of the Income Tax Assessment Act 1936

Question 1

Will an interest charge under section 102AAM of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the taxable component of your withdrawal?

Answer 1

Yes.

Question 2

Will an interest charge under section 102AAM of the ITAA 1936 apply to an amount if it meets the requirements for the corpus reduction under paragraph 99B(2)(a) of the ITAA 1936?

Answer 2

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are a resident of Australia for tax purposes.

On XX/XX/20XX, you withdrew the full balance of your savings and investment plan that was administered in Country A.

The withdrawal included accumulated income of the plan from prior income years.

An amount of withholding tax was deducted and paid to the Internal Revenue Service.

The net amount was paid into your Australian bank account on XX/XX/20XX.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 102AAM

Income Tax Assessment Act 1936 section 99B

Reasons for decision

If you are an Australian resident beneficiary of a non-resident trust and section 99B of the Income Tax Assessment Act 1936 (ITAA 1936) includes a distribution from the non-resident trust in your assessable income, you may be liable to pay additional tax in the nature of an interest charge on the distribution under section 102AAM of the ITAA 1936.

Your tax agent has already established that your savings and investment plan is a foreign trust that is not a foreign superannuation fund for Australian taxation purposes and consequently understands that your withdrawal will result in an amount included in your assessable income under section 99B of the ITAA 1936. Therefore, an interest charge under section 102AAM of the ITAA 1936 may be applicable.

The interest charge may not apply if the foreign trust was a public unit trust or deceased estate. These possible exclusions are not applicable in your case.

The interest charge will apply to the part of the distribution that represents accumulated income from profits of the trust that were concessionally taxed in the foreign country. Country A concessionally taxes the profits of savings and investment plans. Therefore, an interest charge under section 102AAM of the ITAA 1936 will apply in your case.

As the interest charge may only apply to the part of the distribution that represents accumulated income, it will not apply to an amount that meets the requirements for the corpus reduction under paragraph 99B(2)(a) of the ITAA 1936.

Subsection 102AAM(12) of the ITAA 1936 provides that unless the taxpayer is a full self-assessment taxpayer (such as a company), the Commissioner must make an assessment of the interest payable. The Commissioner will do this as part of processing the taxpayer's relevant tax return.

Note that section 102AAM of the ITAA 1936 does not allow for any discretion for the Commissioner to remit or otherwise reduce an amount of interest imposed by the provision.