Edited version of private ruling

Authorisation Number: 1011734476784

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Ruling

Subject: Exemption from Income tax/Withholding tax

Question 1:

Is the trustee of the overseas based superannuation fund excluded from liability to withholding tax on its interest and/or dividend income derived from Australia under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer: No.

Question 2:

Is interest and/or dividend income derived by the trustee of the overseas based superannuation fund non-assessable income of the fund under section 128D of the ITAA 1936?

Answer: No.

This ruling applies for the following period:

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ending 30 June 2011

The scheme commences on

1 July 2006

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The applicant has applied for a private ruling for the superannuation fund for foreign residents.

The application includes the following documentation:

· A copy of a statement from the trustee of the overseas based superannuation fund (the fund), confirming that the fund is an indefinitely continuing fund and a provident, benefit, superannuation or retirement fund, was established in a foreign country, was established and is maintained only to provide benefits for individuals who are not Australian residents, the central management and control of the fund is carried on outside Australia by entities none of whom is an Australian resident, an amount paid to the fund or set aside for the fund has not been or cannot be deducted under the ITAA 1997 and a tax offset has not been allowed or is not allowable for such an amount..

· A letter from the tax authorities in the country of residence of the fund, certifying the fund is a trust forming part of a pension, profit sharing or stock bonus plan which is exempt from taxation and is a resident of that country for taxation purposes.

· Copies of annual statements for a number of years.

· A copy of the fund document providing details of rules and benefits available to the members.

Relevant legislative provisions

Income Tax Assessment Act 1936 Paragraph 128B(3)(jb)

Income Tax Assessment Act 1936 Section 128D

Income Tax Assessment Act 1997 118-520.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

The term 'foreign superannuation fund' is defined in subsection 6(1) of the ITAA 1936 as follows:

"foreign superannuation fund" means, subject to subsection 6(7A), a provident, benefit, superannuation or retirement fund:

· that was established in a country outside Australia;

· that was established, and is maintained and applied, for the sole purpose of providing superannuation benefits for persons other than persons who are, or would ordinarily be or become, residents of Australia or residents of a Territory; and

· the central management and control of which is carried on outside Australia by persons none of whom is a resident of Australia or a resident of a Territory;

· not being a fund for which an amount has been set aside, or to which an amount has been paid, by a taxpayer that is an amount that has been allowed or is allowable as a deduction, or in respect of which a rebate of tax has been allowed or is allowable, under any provision of this Act.

Perusal of the rules of the fund indicates that the fund has not been established for the sole purpose of providing superannuation benefits for its members.

In particular, the rules of the fund permit medical benefits to be provided to a disabled and retired member.

For the year ended 30 June 2007, paragraph 128B(3)(jb) of the ITAA 1936 excludes interest and divided income from withholding tax where that income:

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

ii. consists of interest, consists of 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.

As mentioned above, it is considered that the fund is not a foreign superannuation fund as defined in subsection 6(1) of the ITAA 1936. Accordingly, the interest and/or dividend income of the fund is not excluded from withholding tax pursuant to paragraph 128B(3)(jb) of the ITAA 1936.

As interest and/or dividend income of the fund is not excluded from withholding tax pursuant to paragraph 128B(3)(jb) of the ITAA 1936, interest and/or dividend income derived by the trustee of the fund is assessable income of the fund.

For the years ended 30 June 2008 and onwards, paragraph 128B(3)(jb) of the ITAA 1936 excludes interest and dividend income from withholding tax where that income:

i. is derived by a non-resident that is a superannuation fund for foreign residents; and

ii. consists of interest, consists of 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.

The term 'superannuation fund for foreign residents' is defined in section 118-520 of the Income Tax Assessment Act 1997 (ITAA 1997) as follows:

118-520(1) A fund is a superannuation fund for foreign residents 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; and

(d) at that time, its central management and control is carried on outside Australia by entities none of whom is an Australian resident.

118-520(2) However, a fund is not a superannuation fund for foreign residents if:

(a) an amount paid to the fund or set aside for the fund has been or can be deducted under this Act; or

(b) a tax offset has been allowed or is allowable for such an amount.

Perusal of the rules of the fund indicates that the fund does not satisfy the definition of a superannuation fund for foreign residents. As mentioned above, the fund provides medical benefits in addition to superannuation benefits. Accordingly, the fund fails to satisfy the definition of the term 'superannuation fund for foreign residents' and the interest and/or divided income of the fund is subject to withholding tax and is assessable income of the fund.

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