Private ruling: Assessable income
Date of advice: 2 October 2015
Published: November 2015
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is any part of the lump sum payment included in your assessable income? | A1: Yes.

Relevant facts and circumstances: You arrived in Australia in 200X, were granted permanent residency in 20XX and continue to remain an Australian resident for tax purposes. While living and working in country A, you accumulated a pension (the Pension). After leaving country A in 200X the pension benefits from previous employers were rolled over into another account. There was no tax payable as a result of this rollover. You intend to transfer the monies from this account to Australia. You were issued a private ruling which determined that the account was not a foreign superannuation fund as defined by subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

Relevant legislative provisions: Income Tax Assessment Act 1936 section 99B | Income Tax Assessment Act 1936 subsection 99B(1) | Income Tax Assessment Act 1936 subsection 99B(2) | Income Tax Assessment Act 1936 subsection 995-1(1) | 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 subsection 995-1(1)

Reasons for decision: Summary: Before we can consider the tax consequences of proceeds from the account, we must first consider whether it is considered a foreign trust or a foreign superannuation fund. It has been determined previously that the fund is not a superannuation fund for the purposes of the ITAA 1997 and the ITAA 1936. Repeal of FIF measures On 14 July 2010, the FIF measures were repealed and do not apply from the 2010-11 income year onwards.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. Assessability of trust income Section 6-10 of the 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 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). Application to your circumstances In this case, you intend to redeem your interests from the account as a lump sum payment. A withdrawal of an amount that represents amounts deposited by you would come within paragraph 99B(2)(a) of the ITAA 1936. Distributions, to the extent that they come within subsection 99B(2) of the ITAA 1936, would be excluded from amounts assessable under subsection 99B(1) of the ITAA 1936. However, the income accumulated in the account (paid to you as a resident taxpayer) that is normally taxable in Australia and had not been previously subjected to tax in Australia would be assessable to you under subsection 99B(1) of the ITAA 1936.