Private ruling: Withdrawing funds from a foreign retirement fund
Date of advice: 27 April 2016
Published: June 2017
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Reason for decision | Question and answer | Is a lump sum withdrawal from your overseas fund assessable in Australia? | Yes.

Relevant facts and circumstances: You became a resident of Australia for taxation purposes in the 2017 income year. You have an overseas retirement fund. The fund is used to withdraw income during your retirement. Contributions are not allowed with the fund and you must make minimum mandatory withdrawals each year. The fund payments are considered taxable income in the year they are withdrawn and will be added to your income for tax purposes.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 99B(1) | Income Tax Assessment Act 1936 paragraph 99B(2)(a) | Income Tax Assessment Act 1936 subsection 481(3) | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 subsection 6-10(4) | Income Tax Assessment Act 1997 section10-5

Reasons for decision: Detailed Reasoning - Question and answer: Is a lump sum withdrawal from your overseas fund assessable in Australia? Yes. | Detailed Reasoning - This ruling applies for the following periods:: Year ending 30 June 2017 Year ending 30 June 2018 | Detailed Reasoning - The scheme commenced on:: 1 July 2016 | Detailed Reasoning - Relevant facts and circumstances: You became a resident of Australia for taxation purposes in the 2017 income year. You have an overseas retirement fund. The fund is used to withdraw income during your retirement. Contributions are not allowed with the fund and you must make minimum mandatory withdrawals each year. The fund payments are considered taxable income in the year they are withdrawn and will be added to your income for tax purposes. | Detailed Reasoning - Relevant legislative provisions:: Income Tax Assessment Act 1936 subsection 99B(1) Income Tax Assessment Act 1936 paragraph 99B(2)(a) Income Tax Assessment Act 1936 subsection 481(3) Income Tax Assessment Act 1997 section 6-10 Income Tax Assessment Act 1997 subsection 6-10(4) Income Tax Assessment Act 1997 section10-5 | Detailed Reasoning - Reasons for decision: A foreign trust is defined in subsection 481(3) of the Income Tax Assessment Act 1936 (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 an overseas retirement account. This account is set up for the exclusive benefit of you or your beneficiaries. The fund is a foreign trust as defined in subsection 481(3) of the ITAA 1936 and is therefore a foreign investment fund (FIF). The fund is not a superannuation fund for the purposes of the ITAA 1997 and the ITAA 1936 as it allows for withdrawals for pre-retirement purposes. Therefore the fund is not established solely for the provision of retirement benefits. 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 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 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 the fund which represent the growth in the fund are assessable under subsection 99B(1) of the ITAA 1936. You will be assessed on any growth of the fund received after you became a resident of Australia for taxation purposes.