Private ruling: Assessability of an IRA lump sum
Published: March 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Question and answer: | Are withdrawals from your individual retirement account treated as assessable income? | Yes


Relevant legislative provisions: 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 | Income Tax Assessment Act 1997 Section 99B | Income Tax Assessment Act 1997 Section 99B(1)

Reasons for decision: Detailed Reasoning - Foreign trust: A foreign trust is defined in subsection 481(3) of the ITAA 1936 as a trust which is not an Australian trust, and which did not result from a will or an intestacy in relation to the estate of a deceased person. You have a traditional IRA in country X, which is an individual retirement account. The country X taxation authorities has a publication which states that an IRA is a personal savings plan that gives you tax advantages for setting aside money for retirement. It describes an individual retirement account as a trust or custodial account set up in country X for the exclusive benefit of you or your beneficiaries. Your IRA is a foreign trust as defined in subsection 481(3) of the ITAA 1936 and is therefore a foreign investment fund (FIF). | Detailed Reasoning - Repeal of FIF measures: On 14 July 2010, the FIF measures were repealed and do not apply from the 2010-11 income year onwards.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. | Detailed Reasoning - Assessability of trust income: Section 6-10 of the Income Tax Assessment Act 1997 (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 Income Tax Assessment Act 1936 (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). In your case, as withdrawn amounts are similar to a distribution from a trust, any amounts distributed (withdrawn) or credited from your IRA are assessable under subsection 99B(1) of the ITAA 1936.

Relevant facts: You are over 65 years of age. | You migrated to Australia and became a resident of Australian income tax purposes. | You have an overseas traditional individual retirement account (IRA). | After becoming an Australian resident for tax purposes you withdraw funds from the account at your own discretion.