ATO Interpretative Decision

ATO ID 2009/79

Income Tax

Issue

Are dividends, non-share dividends and interest received in the 2006-07 income year by the taxpayer, the trustee of a foreign superannuation fund, income to which paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936) applies?

Decision

Yes. The dividend, non-share dividend and interest income received by the taxpayer in its capacity as the trustee of a foreign superannuation fund is income to which paragraph 128B(3)(jb) of the ITAA 1936 applies.

Facts

The taxpayer is a 'non-resident' as defined in subsection 6(1) of the ITAA 1936.

The taxpayer is the trustee of a superannuation fund (the fund).

The fund was established in the taxpayer's country of residence and is a foreign superannuation fund as defined in section 118-520 of the Income Tax Assessment Act 1997 (ITAA 1997) as enacted prior to its amendment as part of Tax Laws Amendment (Simplified Superannuation) Act 2007.

In its capacity as trustee of the fund, the taxpayer received income in the 2006-07 income year that consisted of dividends and non-share dividends paid by Australian resident companies and interest.

Within the last three years, the taxing authority in the country of residence of the taxpayer has certified that the fund is exempt from income tax in that country.

Reasons for Decision

Paragraph 128B(3)(jb) of the ITAA 1936 as enacted prior to its amendment as part of the Superannuation Legislation Amendment (Simplification) Act 2007, excluded certain income from being subject to withholding tax where that income:

(i)

is derived by a non-resident that is a foreign superannuation fund; and

(ii)

consists of interest, or consists or dividends or non-share dividends paid by a company that is a resident; and

(iii)

is exempt from income tax in the country in which the non-resident resides.

Non-resident

In relation to the term 'non-resident' in subparagraph 128B(3)(jb)(i) of the ITAA 1936, the definition of the term in subsection 6(1) of the ITAA 1936 states that, unless contrary intention appears, a non-resident is a 'person who is not a resident of Australia'. The definition of 'person' in subsection 6(1) provides that the term 'person' includes a company.

Subsection 128A(10) of the ITAA 1936 as enacted prior to its amendment as part of the Superannuation Legislation Amendment (Simplification) Act 2007, provided that, for the purposes of Division 11A of the ITAA 1936, the trustee of a provident, benefit, superannuation or retirement fund is a non-resident at a particular time if, and only if, the fund is a non-resident superannuation fund at that time.

Applying the definition of 'non-resident' as stated in subsection 6(1) of the ITAA 1936 to the phrase 'a non-resident that is a foreign superannuation fund' in subparagraph 128B(3)(jb)(i) of the ITAA 1936 means that the subparagraph can not be satisfied where the foreign superannuation fund is a trust. This is because the trust is not a 'person' as defined. In such circumstances, subparagraph 128B(3)(jb) of the ITAA 1936 will not operate to exclude the relevant types of income of such a fund from being subject to withholding tax.

This result is inconsistent with paragraph 128B(3)(jb) of the ITAA 1936 in a withholding tax context achieving a similar purpose to that of former paragraph 23(jb) of the ITAA 1936. Before being rewritten into paragraph 128B(3)(jb), former paragraph 23(jb) exempted interest and dividends of foreign superannuation funds. (See paragraph 2.110 of the Explanatory Memorandum to the Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006).

Furthermore, the phrase 'a non-resident that is a foreign superannuation fund' is inconsistent with subsection 128A(10) of the ITAA 1936 for present purposes treating the trustee of a superannuation fund as a non-resident.

Foreign superannuation fund

Subsection 118-520(1) of the ITAA 1997 as enacted prior to its amendment as part of the Tax Laws Amendment (Simplified Superannuation) Act provided that a fund is a foreign superannuation fund at a time if:

(a)

at that time, it is:

(i)

an indefinitely continuing fund; and

(ii)

a provident, benefit, superannuation or retirement fund; and

(b)

it was established in a foreign country; and

(c)

it was established, and is maintained at that time, only to provide benefits for individuals who are not Australian residents or residents of a Territory; and

(d)

at that time, its central management and control is carried on outside Australia by entities none of whom is an Australian resident or a resident of a Territory

unless any of the exceptions in subsection 118-520(2) of the ITAA 1997 apply. See also note below.

Given that, as stated above, the fund is a foreign superannuation fund, none of the exceptions in subsection 118-520(2) of the ITAA 1997 apply.

Non-resident superannuation fund

Former subsection 6E(2) of the ITAA 1936 as enacted prior to its repeal applicable to the 2007-08 and subsequent income years as part of the Superannuation Legislation Amendment (Simplification) Act 2007, provided that, for the purposes of the ITAA 1936, a fund is a non-resident superannuation fund at a particular time if, and only if, the fund:

(a)

is a provident, benefit, superannuation or retirement fund at that time; and

(b)

is not a resident superannuation fund at that time.

Former subsection 6E(1) of the ITAA 1936 as enacted prior to its repeal applicable to the 2007-08 and subsequent income years as part of the Superannuation Legislation Amendment (Simplification) Act 2007 provided that, for the purposes of the ITAA 1936, a fund is a resident superannuation fund at a particular time only if all the conditions in the section are satisfied. One of the conditions in former subsection 6E(1) of the ITAA 1936 requires that the fund was established in Australia.

The fund was established in a foreign country and is a foreign superannuation fund for the purposes of section 118-520 of the ITAA 1997 as enacted prior to its amendment as part of the Tax Laws Amendment (Simplified Superannuation) Act. Therefore, as former paragraphs 6E(2)(a) and 6E(2)(b) of the ITAA 1936 are satisfied in the present case, the fund is a non-resident superannuation fund as defined, not a 'resident superannuation fund'.

In light of the above, subsection 128A(10) of the ITAA 1936 applies to the taxpayer because the fund is a 'foreign superannuation fund' and is also a 'non-resident superannuation fund'.

The application of paragraph 128B(3)(jb) of the ITAA 1936

Given that subsection 128A(10) of the ITAA 1936 treats the trustee to be the non-resident, the Commissioner considers that, where a foreign superannuation fund is a trust, the phrase 'a non-resident that is a foreign superannuation fund' is for the purposes of subparagraph 128B(3)(jb)(i) of the ITAA 1936 a reference to a non-resident that is the person acting in its capacity as the trustee of a foreign superannuation fund.

Accordingly, the Commissioner accepts that the taxpayer is 'a non-resident that is a foreign superannuation fund' for the purposes subparagraph 128B(3)(jb)(i) of the ITAA 1936.

As the dividend, non-share dividend and interest income was received by the taxpayer in its capacity as the trustee of the fund, the Commissioner accepts that, for the purposes of subparagraph 128B(3)(jb)(i) of the ITAA 1936 and for the reasons stated above, the income of the fund is derived by a non-resident that is a foreign superannuation fund.

As the income derived is dividends and non-share dividends paid by companies that are Australian residents and interest, it is income of the type specified in subparagraph 128B(3)(jb)(ii) of the ITAA 1936.

Given that the taxing authority in the country of residence of the taxpayer has provided relevant certification of the fund being exempt in its country of residence, the Commissioner accepts that, for the purposes of subparagraph 128B(3)(jb)(iii) of the ITAA 1936, the income of the fund that satisfies subparagraphs 128B(3)(jb)(i) and 128B(3)(jb)(ii) of the ITAA 1936 is exempt from income tax in the country in which the taxpayer resides.

Therefore, for the reasons stated above, the dividend and interest income of the fund is income to which paragraph 128B(3)(jb) of the ITAA 1936 applies.

Year of income:  Year ended 30 June 2007

Legislative References:
Income Tax Assessment Act 1936
   subsection 6(1)
   section 6E (repealed as of 15 March 2007)
   subsection 6E(1) (repealed as of 15 March 2007)
   subsection 6E(2) (repealed as of 15 March 2007)
   paragraph 23(jb) (repealed as of 14 September 2006)
   subsection 128A(10) (amended as of 15 March 2007)
   section 128B
   paragraph 128B(3)(jb) (amended as at 14 September 2006 to 30 June 2007)
   subparagraph 128B(3)(jb)(i) (amended as at 14 September 2006 to 30 June 2007)
   subparagraph 128B(3)(jb)(ii)
   subparagraph 128B(3)(jb)(iii)

Related ATO Interpretative Decisions
ATO ID 2001/320
ATO ID 2001/334

Other References:
Explanatory Memorandum to Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006

Keywords
Dividend income
Interest income
Non resident dividend withholding tax
Non resident interest withholding tax
Non resident superannuation funds
Superannuation funds
Withholding tax exemptions

Siebel/TDMS Reference Number:  6159121

Business Line:  Public Groups and International

Date of publication:  31 July 2009

ISSN: 1445-2782