1 Will part of the amount included in your assessable income under section 99B (1) of the Income Tax Assessment Act 1936 (ITAA 1936), be reduced under paragraph 99B(2)(a) of ITAA 1936 as it represents corpus of the trust?
1 Yes This ruling applies for the following period : Income year ending 30 June 20YY The scheme commenced on: 1 July 20YY
You were born in Australia and have been a citizen since birth. In MM 20YY, you left Australia with your family to live in the foreign country. In 20YY, your family opened a trust fund (the fund) for you in the foreign country. On DD MM 20YY, you and your family returned permanently to Australia. You have been living in Australia since that date. Your family made gifted contributions to the fund when they were living in the foreign country. No contributions have been made since 20YY and your return to Australia. Your family have had no access to the money in the fund. However, they have controlled the investments on your behalf. The fund has benefited from dividends and investment growth since the start and is now worth approximately $X, at current exchange rates. No tax payable on the fund income in the foreign country. As of DD MM 20YY, (the closest available statement prior to your departure from the foreign country) the fund was worth approximately $X (at the DD MM 20YY exchange rate). As you now aged X years, you are legally allowed access to the fund. You hope to use it to support your studies.
Income Tax Assessment Act 1936 section 99B
Foreign trust income Section 6-10 of the ITAA 1997 states that your assessable income includes some amounts that are not ordinary income. Amounts that are not ordinary income but are included in your assessable income by special provisions about assessable oncome, are called statutory income. The income you received from your fund is foreign trust income and, as such, not ordinary income. Instead, it is included in your assessable as statutory income under one of the special provisions referred to in section 6-10. One of these special provisions is section 99B of ITAA 1936, which makes foreign trust income assessable in Australia. 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.
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, relevantly for present purposes, 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. 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'. Accordingly, the whole amount of the earnings is assessable in Australia, not just the earnings that accrued from when a member of the fund became a resident of Australia for taxation purposes.
The amount that represents the corpus of the fund includes any amounts previously deposited into the fund by the contributors. The lump sum may also include amounts that represent earnings of the fund. The 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. Section 102AAM If section 99B of the ITAA 1936 includes a distribution of accumulated income from a non-resident trust estate in your assessable income, you may be liable to pay additional tax in the nature of an interest charge on the distribution, under section 102AAM of the ITAA 1936. Section 102AAM of the ITAA 1936 imposes an additional interest charge on certain distributions from non-resident trusts, including distributions taxed under subsection 99B (1) of the ITAA 1936. This is a compensatory charge for the tax deferred while profits were accumulated offshore in the trust. The Commissioner has no discretion to remit or reduce the additional charge imposed by section 102AAM.
The interest charge is calculated under subsection 102AAM (5) of the ITAA 1936. The amount interest is charged on is determined in accordance with the formula in subsection 102AAM (2): {Distributed amount x applicable rate of tax} - Foreign income tax offset. The withdrawal which will result in an amount included in your assessable income under subsection 99B(1) is from a foreign resident trust. The foreign country is a listed country under regulation 19 of the Income Tax Assessment (1936 Act) Regulation 2015 . On that basis, paragraph 102AAM(1)(a) provides that the 'distributed amount' will be the section 99B amount where the distribution relates to a listed country trust estate and all or part of the amount is attributable to income or profits of the trust in the form of eligible designated concession income. The amount interest will be charged on therefore equals the amount of the distribution that is included in the beneficiary's assessable income under subsection 99B (1) grossed up for any foreign tax claimed 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.
Interest is charged at the base rate and assuming the trust received the reinvested income post 1 July 1990, interest will be calculated and imposed from the income year in which the reinvested income was earned. Application to your circumstances As discussed above, the earnings, or income, must be included in your tax return in the year you withdraw the lump sum amount from the fund account under section 99B of the ITAA 1936. Interest will be applicable under section 102AAM on the income from the fund, but not any amount that is corpus. You may need to provide relevant documentation to support any claims, including that the corpus amounts were contributions by family or a third party should we undertake a review of your tax affairs. Additional information - foreign income tax offset (FITO) Where the lump sum withdrawal amount is taxed in the foreign country you may be eligible for a FITO in Australia, but only if certain conditions are met. The offset is for the income year in which your assessable income included an amount in respect of which you paid foreign income tax even if you paid the foreign income tax in another income year.
You have stated that the fund was exempt from tax in the foreign country. Therefore, as no tax was paid in the foreign country you are not eligible to claim a FITO.