Private ruling: Income tax - foreign trust lump sum payment
Date of advice: 29 May 2026
Published: 10 August 2026
Ruling period: Year ending DDMMYYYY
Date scheme commenced: DDMMYYYY

Ruling: Q1: Is your 401(k) retirement fund in the USA a foreign superannuation fund for the purposes of Subdivision 305-B of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No. | Q2: Will section 99B of the Income Tax Assessment Act 1936 (ITAA 1936) apply to a lump sum payment you will receive from the 401(k) retirement fund? | A2: Yes. | Q3: Are you entitled to claim a Foreign Income Tax Offset (FITO) for USA tax paid on any part of the lump sum payment you will receive from the 401(k) retirement fund that is included in your Australian assessable income? | A3: Yes. | Q4: Does section 102AAM of the ITAA 1936 apply to impose an interest charge on the lump sum payment you will receive from the 401(k) retirement fund? | A4: Yes.

Relevant facts and circumstances: X (you) are an Australian citizen. You are currently X years of age. On DDMMYYYY you moved from Australia to United States of America (USA) to work for X. On DDMMYYYY, you returned here to live and work for X and again became an Australian resident for tax purposes. While employed by X in the USA, both you and your employer contributed to your 401(k) retirement fund with the total contributions being $X. The 401(k) retirement fund allows for the withdrawal of benefits before retirement age for purposes other than solely retirement. During the YYYY-YY ruling period you will withdraw all benefits from the 401(k) retirement fund.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 99B | Income Tax Assessment Act 1936 section 102AAM | Income Tax Assessment Act 1936 subsection 102AAM(5) | Income Tax Assessment (1936 Act) Regulations 2025 Regulation 19 | Income Tax Assessment Act 1997 subsection 6-10(4) | Income Tax Assessment Act 1997 section 10-5 | Income Tax Assessment Act 1997 subsection 295-95(2) | Income Tax Assessment Act 1997 Subdivision 305-B | Income Tax Assessment Act 1997 section 770-10 | Income Tax Assessment Act 1997 subsection 995-1(1) | Superannuation Industry (Supervision) Act 1993 section 10 | Superannuation Industry (Supervision) Act 1993 section 62

Reasons for decision: Summary: Section 305-70 of the ITAA 1997 will not have any application as the USA 401(k) retirement fund is not a foreign superannuation fund. A lump sum payment will instead be assessable to you under section 99B of the ITAA 1936 as a foreign trust distribution. | Detailed Reasoning - Tax treatment for Lump sum payments received from overseas entity: If the entity making the lump sum payment is not a foreign superannuation fund, then section 305-70 of the ITAA 1997 will not have any application. | Detailed Reasoning - Meaning of 'foreign superannuation fund': A 'foreign superannuation fund' is defined in subsection 995-1(1) of the ITAA 1997 as follows: (a) a superannuation fund is a foreign superannuation fund at a time if the fund is not an Australian superannuation fund at that time; and (b) a superannuation fund is a foreign superannuation fund for an income year if the fund is not an Australian superannuation fund for the income year. Relevantly, subsection 295-95(2) of the ITAA 1997 defines 'Australian superannuation fund' as follows: A superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if: (a) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and (b) at that time, the central management and control of the fund is ordinarily in Australia; and (c) at that time either the fund had no member covered by subsection (3) (anactive member) or at least 50% of: (i) the total market value of the fund's assets attributable to superannuation interests held by active members; or (ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members; is attributable to superannuation interests held by active members who are Australian residents. Thus, a superannuation fund that is established outside of Australia and has its central management and control outside of Australia would qualify as a foreign superannuation fund. The fact that some of its members may be Australian residents would not necessarily alter this. | Detailed Reasoning - Meaning of 'superannuation fund': 'Superannuation fund' is defined in subsection 995-1(1) of the ITAA 1997 as having the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA). Subsection 10(1) of the SISA provides that: Superannuation fund means: (a) a fund that: (i) is an indefinitely continuing fund; and (ii) is a provident, benefit, superannuation or retirement fund; or (b) a public sector superannuation scheme. | Detailed Reasoning - Meaning of 'provident, benefit, superannuation or retirement fund': Whether the foreign fund is a foreign superannuation fund requires consideration of the meaning of the term 'provident, benefit, superannuation or retirement fund' in subsection 10(1) of the SISA. Each of these terms are not defined in the ITAA 1936, ITAA 1997, the SISA or elsewhere in the tax acts. Accordingly, those terms will derive their meaning from their ordinary meaning and the relevant case law. In the context of considering the term 'provident, benefit or superannuation fund established for the benefit of employees', in former subparagraph 23(j)(i) of the ITAA 1936, the Full Bench of the High Court in Mahony v Commissioner of Taxation (Cth) (1967) 41 ALJR 232; (1967) 14 ATD 519 ( Mahony ) considered that this phrase denoted 'a purpose narrower than the conferral of benefits in a completely general sense' and had to be characterised by 'some specific future purpose'. In the case of a provident fund, against 'contemplated contingencies; in the case of a superannuation fund 'on retirement, death or cessation of employment'; and, in the case of a benefit fund 'a benefit characterised by some specific future purpose' (e.g. a funeral fund). Furthermore, Justice Kitto's judgement in Mahony indicated that a fund does not satisfy any of the three provisions, that is, either a 'provident, benefit or superannuation fund', if there exist provisions for the payment of benefits 'for any other reason whatsoever'. A similar approach was also adopted by Taylor J and Windeyer JJ in Mahony who said: ...In other words, if they could, keeping within the terms of the trust, apply the fund or any portion thereof to purposes foreign to the true purposes of such a fund, then it would not be such a fund. Accordingly, the purpose of the fund must be solely consistent with it being a 'provident, benefit or superannuation fund'. Similar observations have been made in a number of other authorities. In the context of what constitutes a 'superannuation fund' and a 'fund', Justice Windeyer in Scott v.Federal Commissioner of Taxation (No.2) (1966) 10 AITR 290; (1966) 40 ALJR 265; (1966) 14 ATD 333emphasised the 'sole purpose' requirement, stating: ...I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion "fund", I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalised. I do not put this forward as a definition, but rather as a general description. More recently, in considering the term 'provident, benefit, superannuation or retirement fund' as it now appears in the definition of 'superannuation fund' in subsection 10(1) of the SISA, Senior Member FD O'Loughlin in Baker v. FC of T [2015] AATA 469 ( Baker ) stated at [16]: Accordingly, a trust arrangement that is not a provident fund, benefit fund or retirement fund, that allows for payment of superannuation styled benefits and other benefits not permitted by the Supervision Act will not be a superannuation fund. Whilst the Senior Member in Baker made reference to 'benefits not permitted by the Supervision Act' in the context of considering whether a particular fund which was not a 'provident, benefit or retirement fund' was a 'superannuation fund', it is noted that section 62 of the SISA largely replicates the relevant case law and requires the fund be 'maintained solely' for one or more of the 'core purposes' of providing benefits to a member when the events occur: • on or after retirement from gainful employment; • attaining a prescribed age; or • on the member's death (this may require the benefits being passed on to a member's dependants or legal representative). Whether a fund has been established for the requisite purpose required, is determined by considering the terms of the trust deed. This is an objective determination, and it is not determined by the subjective intentions of the parties. Whether a particular arrangement constitutes a superannuation fund is dependent upon the facts and circumstances of the case. Regard is had to the terms of the constituent arrangements and what the relevant trustee can and cannot do, and is and is not obliged to do, with the trust assets and property. As Taylor and Windeyer JJ observed in Mahony : It thus becomes necessary to look carefully and critically at the terms of the trust deed, at what is required and what is permitted - that is to say in what ways the trustees might, without any breach of the trusts it imposes, apply the trust property. A 401(k) retirement fund allows monetary withdrawals to be made in circumstances which include the following: • from age 59.5 total benefits may be withdrawn without restriction or penalty • total benefits may be withdrawn at or after age 55 provided the member has terminated employment with an employer • total benefits may be withdrawn upon termination of employment • after tax contributions may be withdrawn without restriction • loans may be made to members • non-resident returning to home country. A 401(k) retirement fund satisfies some of the requirements of a foreign superannuation fund, however the fund is not exclusively a provident, benefit or superannuation fund because it does not provide benefits for the specific future purposes of the individual's retirement. Members can withdraw benefits prior to retirement age. In other words, a 401(k) retirement fund provides for the payment of benefits for reasons other than retirement and not solely (that is, exclusively) for retirement purposes. Accordingly, a lump sum payment you will receive from the 401(k) retirement fund will not be a payment from a foreign superannuation fund and section 305-70 of the ITAA 1997 will not have any application. The lump sum payment will instead be assessable to you under section 99B of the ITAA 1936 as a foreign trust distribution. | Summary: A lump sum payment you receive from the 401(k) retirement fund will be assessable to you under section 99B of the ITAA 1936 as a foreign trust distribution. | Detailed Reasoning - Detailed reasoning: Subsection 6-10(4) of the ITAA 1997 states that the assessable income of an Australian resident taxpayer includes statutory income from all sources, whether in or out of Australia. Section 10-5 of the ITAA 1997 lists certain statutory amounts that form part of assessable income. Included in the list are amounts received as a beneficiary of a trust pursuant to section 99B of the ITAA 1936. Where foreign pension plans or funds do not meet the definition of 'foreign superannuation fund' in subsection 995-1(1) of the ITAA 1997, the funds are treated as foreign trust estates for which section 99B will apply to tax distributions made to, or for the benefit of, resident beneficiaries. Subject to subsection 99B(2) of the ITAA 1936, subsection 99B(1) requires an Australian resident beneficiary to include in their assessable income an amount of trust property that is paid to, or applied for their benefit, provided the Australian beneficiary was resident at any time during the income year in which the payment or application was made. Subsection 99B(2) of the ITAA 1936 reduces the amount included in assessable income under subsection 99B(1) by: • for paragraph 99B(2)(a) - so much of the amount as represents corpus of the trust estate, except to the extent to which it is attributable to amounts derived by the trust estate that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer for a year of income, and • for paragraph 99B(2)(b) - so much of the amount as represents an amount that, if it had been derived by a taxpayer being a resident, would not have been included in the assessable income of that taxpayer of a year of income. 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'. Taxation Determination TD 2024/9 Income tax: factors taken into account in applying paragraphs 99B(2)(a) and (b) of the Income Tax Assessment Act 1936 explains that corpus, in the context in which it is used in section 99B of the ITAA 1936 refers to trust capital which is represented by the assets of the trust, excluding income which has not been accumulated. In determining whether an amount distributed represents corpus, for the purposes of paragraph 99B(2)(a), regard is had to the trust property distributed. Accumulated income is included in corpus, but it will be corpus which is attributable to amounts which would be included in assessable income if derived by a hypothetical resident taxpayer. Accordingly the amount assessed under subsection 99B(1) of the ITAA 1936 will not be reduced by an amount attributable to accumulated income under paragraph 99B(2)(a). ATO Interpretive Decision ATO ID 2011/93 Income Tax: Application of section 99B of the Income Tax Assessment Act 1936 when accumulated foreign source income is paid to an Australian resident beneficiary who was a non-resident when the trustee derived the income provides the Commissioner's view of the operation of section 99B of the ITAA 1936 in respect of the receipt of an amount that comprised solely of foreign interest income. The Commissioner's view is that the entire amount of the payment is included in the beneficiary's assessable income under subsection 99B(1) of the ITAA 1936 because: • The conditions in subsection 99B(1) of the ITAA 1936 are satisfied as the taxpayer has received an amount of trust property during an income year in which the taxpayer was a resident; • Trust property paid to the resident beneficiary is attributable to foreign source income derived by the trust and none of the exclusions in subsection 99B(2) of the ITAA 1936 apply to reduce the amount included in the assessable income of the beneficiary; and • It is clear from the language of section 99B, and by inference from subsection 102AAM(5) of the ITAA 1936, that there is no apportionment of the amount included in assessable income by reference to the residency status of the beneficiary as at the time the income was derived by the trust. Rather, the only explicit condition concerning residency is that the beneficiary be a resident at some time during the year of income in which the trust property is paid to them or applied for their benefit. In your case, the amount that represents the corpus of the 401(k) retirement fund includes contributions you previously made to the fund. Any lump sum payment you receive may also include amounts that represent earnings of the 401(k) retirement fund. Although the earnings may represent corpus, they are attributable to income derived by the 401(k) retirement fund which would have been subject to tax had the earnings been derived by a resident taxpayer. Further, the 401(k) retirement fund earnings are not assessable income in the year they are added to your account; instead, they are only assessable under section 99B of the ITAA 1936 when a withdrawal from the fund is made. In summary, paragraph 99B(2)(a) of the ITAA 1936 applies to you so that: • the proportion of any lump sum payment that represents amounts previously deposited to the 401(k) retirement fund by you or your former employer is excluded from assessable income, and • the proportion of any lump sum payment that represents 401(k) retirement fund earnings (from the commencement date of the fund) is included in your Australian assessable income. | Detailed Reasoning - Question 3: Are you entitled to claim a Foreign Income Tax Offset (FITO) for USA tax paid on any part of the lump sum payment you will receive from the 401(k) retirement fund that is included in your Australian assessable income? | Detailed Reasoning - Detailed reasoning: Section 770-10 of the ITAA 1997 provides that a FITO can be claimed for foreign income tax paid by a taxpayer in respect of an amount that is included in their assessable income. Foreign income tax is a tax imposed by a law other than an Australian law, on income, profits or gains. The taxpayer must have paid the foreign income tax before an offset is available. A taxpayer is deemed to have paid the foreign income tax if the foreign income tax has been withheld from the income at its source. Where the foreign income tax you have paid on an amount that is part non-assessable non-exempt income and part assessable income for the income year, only a proportionate share of the foreign income tax paid (the share that corresponds to the part that is assessable income) can be claimed. In your case the FITO can be claimed where you have paid foreign income tax in respect of an amount that is included in your assessable income. | Detailed Reasoning - Question 4: Does section 102AAM of the ITAA 1936 apply to impose an interest charge on a lump sum payment you will receive from the 401(k) retirement fund? | Summary: In addition to the lump sum payment amount assessable under section 99B of the ITAA 1936, you will also be liable for an interest charge as calculated under section 102AAM of the ITAA 1936. The interest charge may apply to a distribution of profits from a non-resident trust estate to the extent the distribution was made from profits that: • are referable to eligible designated concession income derived in an income year when the trust was a resident of a listed country, or • were not subject to tax in a listed country and were derived in an income year when the trust was a resident of an unlisted country. The USA is a listed country under subsection X of the Income Tax Assessment (1936 Act) Regulations 2025 . The amount on which interest is payable is worked out using the following formula: (Distributed amount × applicable rate of tax) - FITO The distributed amount is the amount of the distribution that is included in the taxpayer's assessable income under section 99B of the ITAA 1936. This amount is grossed up for any foreign tax claimable on that share. The applicable rate of tax is the maximum marginal rate that applies for the income year of the taxpayer in which the trust distribution is received and has the meaning given by subsection 102AAM(10) of the ITAA 1936. The foreign income tax offset (FITO) is the amount the taxpayer can claim under Division 770 of the ITAA 1997 for foreign income tax paid on an amount included as assessable income for the distribution made by the non-resident trust. For amounts paid out of income or profits accumulated, the interest period begins from the start of the income year following the income year it was accumulated.