Private ruling: International income
Date of advice: 25 September 2025
Published: 17 November 2025
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY | Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Was the lump sum payment to you from the foreign pension assessable income under subsection 99B(1) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes. | Q2: Are the monthly payment amounts you receive from your former spouse's retirement account included in your assessable income under subsection 99B(1) of the ITAA 1936 be partially reduced under paragraph 99B(2)(a) of the ITAA 1936? | A2: Yes.

Relevant facts and circumstances: You are an Australian citizen and resident of Australia for tax purposes. You were married. Your former spouse is a citizen of the XXX. You moved to the XXX in 19YY and lived there with your former spouse until XX MM 20YY. The marriage produced two children. You returned to Australia in MM 20YY with one of your children (child A). X months later your second child (child B) joined you in Australia. Your former spouse was a member of the XXXX. You and your former spouse separated and then divorced on DD MM 20YY. On DD MM 20YY you entered a Divorce Settlement with your former spouse. Under the Settlement, your former spouse paid you child support in the sum of $X,XXX per month commencing on DD MM 20YY and continuing until the youngest child, child B, either: • the latter of reaching maturity or graduating from high school, or • marries, or • is deceased, or • enlists in the armed forces. Child B completed high school X years ago, and the child support payments ceased at this time. Your former spouse also maintained health support for each child as long as child support was payable for each child. Your ex-spouse also paid you post divorce spousal maintenance to the sum of $XXX per month commencing on DD MM 20YY for a period of X months, with the final payment on DD MM 20YY. The Divorce Settlement also sets out the division of your former spouse's Retirement. The Retirement Savings Plan is a retirement fund established and managed outside Australia. You received a lump sum of $XX,XXX from your former spouse's retirement plan on DD MM 20YY. You continue to receive monthly payment amounts calculated as XX% of your former spouse's disposable retirement pay under the X as determined from the date of marriage in 19YY to DD MM 20YY (the community portion) and specified in the X.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 97 | Income Tax Assessment Act 1936 section 99B | Income Tax Assessment Act 1997 subsection 6-5 | Income Tax Assessment Act 1997 subsection 6-10 | 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 305-70 | Income Tax Assessment Act 1997 section 305-75 | Income Tax Assessment Act 1997 section 770-10 | Income Tax Assessment Act 1997 section 960-50 | Income Tax Assessment Act 1997 subsection 995-1(1) | Superannuation Industry (Supervision) Act 1993 subsection 10(1) | Superannuation Industry (Supervision) Act 1993 section 62 | International Tax Agreements Act 1953

Reasons for decision: Detailed Reasoning - Assessable income: Assessable income includes ordinary income under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) and statutory income under section 6-10 of the ITAA 1997. Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Ordinary income has generally been held to include 3 categories, namely, income from rendering personal services, income from property and income from carrying on a business. Other characteristics of income that have evolved from case law include receipts that: • are earned • are expected • are relied upon, and • have an element of periodicity, recurrence or regularity. Statutory income is not ordinary income but is included in assessable income by a specific provision in the tax legislation (subsection 6-10(2) of the ITAA 1997). Section 10-5 of the ITAA 1997 lists the provisions for assessable income, which includes section 102-5 of the ITAA 1997 for capital gains. Under section 6-15 of the ITAA 1997, if an amount is not ordinary income nor statutory income it is not assessable income, being exempt, and you do not have to pay tax on it. Section 10-5 of the ITAA 1997 lists those provisions about statutory income. Included in this list is section 99B of the Income Tax Assessment Act 1936 (ITAA 1936) which deals with receipt of trust income not previously subject to tax. 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, that amount is to be included in the assessable income of the beneficiary. However, 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 is not to include any amount that represents the corpus of the trust, but an amount that is attributable to income of the trust which would have been included in the assessable income of a resident taxpayer if it had been derived by that taxpayer. Consequently, the assessable amount is the total amount received less any amounts deposited to the fund (the corpus) by the taxpayer, or on their behalf. The rule is that the taxpayer is taxed only on the earnings of the investment on withdrawal, not on the corpus returned to them. Any earnings in the funds are only assessable in Australia on withdrawal from the funds. | Detailed Reasoning - Lump sum payments received from certain foreign superannuation funds: Subdivision 305-B of the ITAA 1997 sets out the tax treatment of superannuation lump sum benefits paid from foreign superannuation funds and other foreign schemes for the payment of similar retirement or death benefits, as defined in section 305-55 of the ITAA 1997. Before determining whether an amount is assessable income under subdivision 305-B of the ITAA 1997, it is necessary to determine whether the payment is being made from a foreign superannuation fund. If the entity making the payment is not a foreign superannuation fund (or scheme for the payment of superannuation benefits), Subdivision 305-B will not apply to the payment. | Detailed Reasoning - Superannuation fund: 'Superannuation fund' is defined in subsection 995-1(1) as having the same meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA). In accordance with subsection 10(1) of the SISA, 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 '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 that income year. Subsection 295-95(2) of the ITAA 1997 provides that an Australian superannuation fund is: 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 active members 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. The three tests under subsection 295-95(2) of the ITAA 1997 must be satisfied at the same time. If a fund fails to satisfy one of the above tests at a particular time, it is not an Australian superannuation fund at that time. Section 305-55 of the ITAA 1997 also provides for a lump sum benefit payment (that is not a pension payment) made from a foreign retirement scheme (that provides retirement benefits 'in the nature of superannuation') to receive the same tax treatment as a superannuation lump sum paid from a foreign superannuation fund. However, the conditions in Subsection 305-55(2) of the ITAA 1997 must be met, including: a) the scheme was not established in Australia; and b) the scheme is not centrally managed or controlled in Australia. | Detailed Reasoning - Assessable income from a payment by a foreign entity that is not a superannuation fund (foreign trust income): A distribution from a foreign retirement fund may also be subject to assessment under section of the ITAA 1936. Broadly, section 99B of the ITAA 1936 deals with the receipt of trust amounts that have not previously been subject to tax in Australia. It will apply where an Australian resident for tax purposes receives payments from a foreign trust. Subsection 99B(1) of the ITAA 1936 provides that where a beneficiary who was an Australian resident at any time during an income year is paid an amount from a trust or has an amount of trust property applied for their benefit, that amount is to be included in the assessable income of the beneficiary in the income year it is paid. However, subsection 99B(2) of the ITAA 1936 reduces the amount to be included in assessable income under subsection 99B(1) by so much of that amount as represents the corpus of the trust, but not to the extent that it is attributable to income derived by the trust which would have been subject to tax had it been derived by a resident taxpayer. 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 was 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). The term 'corpus' is not defined in the legislation; therefore, it takes the ordinary meaning of the term. The Macquarie Dictionary (Online edition 2025) defines 'corpus' to mean a principal or capital sum, as opposed to interest or income. The amount that represents the corpus of the fund includes any amounts previously deposited into the fund by the individual and their employer. Fund earnings are not taken to represent corpus, as the earnings are attributable to income derived by the fund which would have been subject to tax had the earnings been derived by a resident taxpayer. | Detailed Reasoning - Double Taxation Agreement, USA: Subsection 6-5(2) provides that the assessable income of an Australian resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. In determining liability to tax on foreign sourced income, it is necessary to consider not only the income tax laws but also any applicable double tax agreement contained in the International Tax Agreements Act 1953 (the Agreements Act). Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and ITAA 1997 so that those Acts are read as one. Schedule 2 to the Agreements Act contains the XX Convention. The XX Convention operates to avoid the double taxation of income received by Australian and XX residents. Article 1 of the XX XX XX XX as amended by the Country A protocol (No. 1) (the Convention) provides that the Convention will apply to persons who are residents of either Australia or the XX. Where a resident of Australia for the purposes of the XX Convention has received amounts of income from an entity based in the XX, the XX Convention will apply in respect of that income. Article 18 of the XX Convention deals with pensions and annuities which are usually paid as an income stream. In your case, you received, and will receive, payments from the XX retirement plan which is not considered to be a pension or annuity. The XX Convention does not contain any articles that specifically relate to the receipt of funds from a foreign retirement or investment fund, so Article 21 concerning 'Other income' will apply. Paragraphs (1) and (3) of Article 21 provide that income of a resident of one of the countries which is not dealt with in the foregoing Articles of the Convention will be taxable only in the country of residency. However, if such income is derived by a resident of one of the countries from sources in the other country, such income may also be taxed in the country in which it has its source. Therefore, the XX Convention allows both Australia and the XX to tax any withdrawals made from your former spouse's retirement fund. Article XX (paragraph (X)) of the XX Convention provides that Australia will allow a credit for XX tax (other than XX tax imposed solely by reason of citizenship or by an election by an individual under XX domestic law to be taxed as a resident of the XX) on income derived by a resident of Australia from sources in the XX. | Detailed Reasoning - Foreign income tax offset (FITO): A foreign income tax offset is a non-refundable tax offset, that will reduce the Australian tax that would be payable on foreign income which has been subjected to foreign income tax. 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. Section 770-10 of the ITAA 1997 is the primary provision under which a foreign income tax offset arises. 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. When claiming a FITO, you are required to gross up your income for the foreign tax paid (or which is taken to have been paid) in respect of that income. The amount of the tax offset is the sum of all foreign income tax that has been paid by the taxpayer for the income year subject to a limit (cap) (section 770-70 of the ITAA 1997). The foreign tax offset cap is based on the amount of Australian tax payable on the double-taxed amounts and other assessable income amounts that do not have an Australian source. If foreign tax has been withheld from amounts paid, the taxpayer is entitled to claim a FITO only for the proportion of the foreign income tax which equates to the proportion of foreign income included in the assessment subject to the foreign income tax offset cap. | Detailed Reasoning - Application to your situation: In your situation you and your former spouse separated, with your divorce being finalised prior to your returning to Australia. You and your former spouse entered into a Divorce Settlement under which you would receive a lump sum of XX$XX,XXX from your former spouse's retirement plan, and paid to you on DD MM 20YY, plus ongoing monthly payments amounts calculated as XX% of your former spouse's disposable retirement pay under the SBP as determined from the date of marriage in 19YY to DD MM 20YY (the community portion) and specified in the XXX. The payer of these payments is your former spouse's retirement fund and not your former spouse. The Divorce Settlement is not a maintenance agreement. It is a settlement regarding division of the marital estate. Under the divorce settlement your former spouse is not liable for paying the tax on the payments to you as per the instruction of the divorce settlement under the heading Treatment / Allocation of Community Income. In this case, your spouse's retirement fund does not meet the definition of a 'foreign superannuation fund' under subsection 995-1(1). Therefore, it is foreign trust estate for which section 99B would apply to tax distributions made to, or for the benefit of, a resident beneficiary. The lump sum payment does not have the characteristics of ordinary income. Therefore, the lump sum payment to you from your formers spouse's 401(k) Retirement Savings Plan is not ordinary income under subsection 6-5(2) of the ITAA 1997. The monthly payments you receive under the Divorce Settlement, and continue to receive, are assessable and need to be included in your income tax returns in the income years covered by the ruling period and future years. Although the payments can be said to be expected, and perhaps relied upon, this expectation arises from the divorce settlement between you and your former spouse, rather than from any services you performed. In your case, the withdrawn amounts are a distribution from a trust, any amounts distributed (withdrawn) or credited from the 401(k) fund are assessable under subsection 99B(1) of the ITAA 1936. As you are a resident of Australia for taxation purposes, you will need to include in your assessable income all amounts paid to you, or applied for your benefit, from the retirement plan, subject to the exclusion contained in subsection 99B(2) of the ITAA 1936. Therefore, paragraph 99B(2)(a) of the ITAA 1936 applies to you so that: a) the proportion of any payments that represents amounts previously deposited to the fund by your spouse and their employer would be excluded from your assessable income, and b) the proportion of any payments that represents earnings of the fund (from the commencement date of the fund) would be included in your assessable income. That is, the assessable amount under section 99B of the ITAA 1936 is the total amount received by you less any amounts deposited to the fund (the corpus) by your former spouse, or on their behalf. You have not provided any information to demonstrate the components of those payments as corpus or contributions from your former spouse's employer. | Detailed Reasoning - Conclusion: As outlined above, the monthly maintenance payments you receive under the Divorce Settlement and continue to receive are assessable and need to be included in your income tax returns in the income years covered by the ruling period and future years. It should be noted that the benefit amount withdrawn from the fund, prior to the deduction of tax, is the amount to be used in the calculation. You are entitled to a FITO for any income tax withheld from your income received from your former spouses retirement fund limited to the amount to which you are entitled under section 770-10 of the ITAA 1997. That is, if the foreign income tax has been 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) will count towards the tax offset. In your case, you will be entitled to claim a FITO that corresponds to the foreign tax paid on the proportion of the withdrawals from your former spouse's retirement fund that are included in your assessable income.