1 Will the balance of funds rolled over into your Retirement Accounts from your Retirement Plan, constitute the X of the Retirement Accounts for the purposes of paragraph 99B(2)(a) of the Income Tax Assessment Act 1936 (ITAA 1936)?
1 Yes. The amounts transferred from your Retirement Plan to your Retirement Accounts are considered X of the Retirement Accounts. However, the exception in paragraph 99B(2)(a) of the ITAA 1936 applies, to the extent that the amounts are attributable to earnings derived from amounts contributed by you and your employer into the Retirement Plan. Accordingly, as you are a resident taxpayer the amount assessed under subsection 99B(1) upon withdrawal will not be reduced by an amount that represents the accumulated earnings. Question 2 Do the amounts contributed by you and your employer into the original Retirement Plan constitute X for the purpose of subsection 99B(2) of the ITAA 1936? Answer 2 Yes. these are amounts would be X. They would not be subject to the exception in paragraph 99B(2)(a) as they would not be 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. This ruling applies for the following periods: 1 July 20xx to 30 June 20xx 1 July 20xx to 30 June 20xx 1 July 20xx to 30 June 20xx The scheme commenced on: xx/xx/xxxx
You were previously employed by a foreign employer. You were an Australian resident for tax purposes during your employment period with this employer. You never resided in a country other than Australia during your period of employment, however, most of your employment period was spent overseas. Your period of employment was from 19xx to 20xx when your employment ceased. You did not declare foreign income from 19xx to the 20xx income year in your Australian assessable income. You participated in and contributed to an Employer Sponsored Retirement Plan and contributions were paid into your plan by both you and your employer during the employment period. The first three months of your employment were the standard probation period therefore you joined the plan in 20xx. You included your salary (net these contribution amounts) in your Australian assessable income after the 20xx Income Tax year. In 20xx, while you were an Australian resident for tax purposes, you rolled over the balance of your Employer Sponsored Retirement Plan into two Retirement Accounts as it was a requirement when your employment ceased.
At the roll-over point, you were entitled to draw the full amount in your plan. However, the roll-over amount would have been subject to an early withdrawal penalty imposed because you had not met fund requirements. At this point you chose to roll the balance of your plan into the two new accounts on that basis. You intend to withdraw an amount from your plan while an Australian resident. Some amounts in your Retirement Account have not previously been taxed in Australia or any other jurisdiction and consists of amounts you and your employer contributed and earnings from those amounts. Tax Offsets: You have claimed foreign income tax offsets in your income tax returns for tax amounts paid to the other jurisdictions revenue service.
Income Tax Assessment Act 1936 section 99B(1) Income Tax Assessment Act 1936 subsection 99B(2) Income Tax Assessment Act 1936 paragraph 99B(2)(a) Income Tax Assessment Act 1936 paragraph 99B(2)(b)
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 applies where an Australian resident for tax purposes receives a lump sum payment from a foreign trust. Subject to subsection 99B(2) of the ITAA 1936, subsection 99B(1) requires an Australian 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 X 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. 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 X, 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 X, for the purposes of paragraph 99B(2)(a), regard is had to the trust property distributed. The accounting records of the trust may assist in evidencing this but are not determinative of what the amount represents.
Accumulated income is included in X, but it will be X 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). In this instance, the balance of funds rolled over from your Retirement Plan to the two new accounts that represents the contributions made by you and your employer and accumulated earnings on those contributions would be X based on the view in TD 2024/9:
However, the exception in paragraph 99B(2)(a) needs to be analysed to determine whether those amounts that represent X would reduce the amount assessable under subsection 99B(1). If the amounts that represent X are 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 of a year of income, then those amounts will not reduce the amount assessable under subsection 99B(1) To determine this, a tracing exercise is undertaken when the amount is withdrawn from the accounts to demonstrate whether any amounts received which were X fall into the exception. This exercise would look through the two new accounts to the amounts derived by the originating Retirement Plan and then 'rolled over' to the subsequent accounts. If amounts withdrawn represent amounts originally derived by the Retirement Plan that fall into the exception, then they will not reduce the amount assessable under subsection 99B(1). In this case, paragraph 99B(2)(a) applies to you so that:
• the proportion of any withdrawn amount that represents contributions by you or your employer either into the Retirement Plan or the two new accounts will reduce the amount assessable under subsection 99B(1). • The proportion of any withdrawn amount that represents accumulated earnings either from the Retirement Plan or the two new accounts will not reduce the amount assessable under subsection 99B(1).