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Ruling

Subject: Foreign Super Fund - Exemption from Income tax/withholding tax

Questions and answers

Question 1

Does the pension plan qualify as a superannuation fund for foreign residents as defined in subsection 118-520(1) of the Income Tax Assessment Act 1997?

Yes.

Question 2

Is the trustee of the pension plan excluded from liability to interest and/or dividend withholding tax under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936?

Yes.

Question 3

Is interest and/or dividend income derived from Australia by the trustee of the pension plan not assessable and not exempt income under section 128D of the Income Tax Assessment Act 1936?

Yes.

Question 4

Is the pension plan a 'foreign superannuation fund' for the purposes of paragraph 12-402(3)(b) of Schedule 1 of the Taxation Administration Act 1953?

Yes.

Question 5

Is the pension plan an entity that is covered by the requirements of subparagraphs 12-402(3)(f)(i) and 12-402(3)(f)(ii) of Schedule 1 of the Taxation Administration Act 1953?

Yes.

This ruling applies for the following period:

1 July 2012 to 30 June 2017.

The scheme commenced on:

1 July 2012.

Relevant facts and circumstances:

The pension plan is a defined benefit pension plan established by an act of parliament of another country to provide retirement, death and disability benefits to certain beneficiaries of that country.

The administrator of the pension plan has provided a statement confirming that:

· the pension plan was established outside Australia,

· the pension plan was established and is maintained to provide benefits for non-residents of Australia,

· the pension plan is centrally managed and controlled outside Australia by entities, none of whom is an Australian resident,

· an amount paid or set aside for the pension plan has not been allowed, nor taken as:

o a deduction, or

o a tax offset under any provision of the Income Tax Assessment Act 1997, and

· the pension plan is an indefinitely continuing provident, benefit, superannuation or retirement fund.

You have stated that the pension plan is exempt from taxation in the country in which it is a resident.

The taxation authority of the country in which the pension plan resides has issued a letter certifying the pension plan is exempt from taxation in that country.

The benefits provided by the primary plan and the rules governing the primary plan are detailed in a legal document.

You have provided a copy of the relevant year annual report for the pension plan.

Relevant legislative provisions:

Income Tax Assessment Act 1997 Section 118-520.

Income Tax Assessment Act 1936 Section 128D.

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

Tax Administration Act 1953 Subdivision 12-H of Schedule 1

Tax Administration Act 1953 Paragraph 12-402(3)(b) of Schedule 1.

Tax Administration Act 1953 Subparagraph 12-402(3)(f)(i) of Schedule 1

Tax Administration Act 1953 Subparagraph 12-402(3)(f)(ii) of Schedule 1

Reasons for decision

Questions 1, 2 and 3

Section 128D of the Income Tax Assessment Act 1936 (ITAA 1936) provides that interest and dividend income that is excluded from withholding tax pursuant to paragraph 128B(3)(jb) of the ITAA 1936 is not assessable income.

For the financial 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, or 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;

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

Based on the facts of this case, we consider that the pension plan satisfies the definition of a superannuation fund for foreign residents for the purposes of section 118-520 of the ITAA 1997. Accordingly, the interest and/or dividend income of the pension plan is excluded from withholding tax and is not assessable income under the provisions of Section 128D of the ITAA 1936 and paragraph 128B(3)(jb) of the ITAA 1936.

Question 4

Subdivision 12-H of Schedule 1 to the TAA 1953 deals with 'Pay As You Go' withholding obligations for distributions of managed investment trust income to foreign residents.

Section 12-402 of Schedule 1 of the ITAA 1953 establishes the widely held requirements for the entities included in the section.

Subsection 12-402(3) of Schedule 1 of the TAA 1953 details the kinds of entities that are covered by section 12-402 and in this regard, paragraph 12-402(3)(b) of Schedule 1 of the TAA 1953 provides that a foreign superannuation fund is included as an entity that is covered by section 12-402 of Schedule 1 of the TAA 1953.

The term 'foreign superannuation fund' is essentially defined in subsection 995-1(1) of the ITAA 1997 as being a superannuation fund that is not an Australian superannuation fund.

Paragraph 295-95(2)(b) of the ITAA 1997 specifies that a superannuation fund that that was not established in Australia and does not have its central management and control ordinarily in Australia is not an Australian superannuation fund.

The pension plan is not an Australian superannuation fund because it was established in a country outside of Australia and its central management and control is in a country outside of Australia. Accordingly, the pension plan is a foreign superannuation fund for the purposes of paragraph 12-402(3)(b)of Schedule 1 of the TAA 1953.

Question 5

Paragraph 12-402(3)(f) of Schedule 1 of the TAA 1953 provides that an entity, the principal purpose of which is to fund pensions (including disability and similar benefits) for the citizens or other contributors of a foreign country, is also covered by section 12-402 if:

· the entity is a fund established by an exempt foreign government agency (subparagraph 12-402(3)(f)(i) of Schedule 1 of the TAA 1953), or

· the entity is established under a foreign law for an exempt foreign government agency (subparagraph 12-402(3)(f)(ii) of Schedule 1 of the TAA 1953).

The pension plan was established under a foreign law to provide retirement, death and disability benefits for non-residents of Australia. More specifically, the pension plan provides these benefits to and in respect of certain beneficiaries in the foreign country. Accordingly, we consider the principal purpose of the pension plan is to fund pensions (including disability and similar benefits) for the citizens or other contributors of a foreign country. However, to determine whether or not the primary plan is an entity covered by the requirements of subparagraphs 12-402(3)(f)(i) or 12-402(3)(f)(ii) of Schedule 1 of the TAA, it is necessary to determine whether or not the pension plan was established either by an exempt foreign government agency, or under a foreign law for an exempt foreign government agency.

The term 'exempt foreign government agency' is defined in section 995-1 of the ITAA 1997 to include the government of a foreign country, or of part of a foreign country.

The pension plan was established by the laws of a foreign country. Furthermore, the pension plan provides retirement, death and disability benefits to and in respect of certain beneficiaries of that foreign country. Accordingly, we consider the pension plan:

· is a fund established by an exempt foreign government agency, for the purposes of subparagraph 12-402(3)(f)(i) of Schedule 1 of the TAA 1953, and

· was established under a foreign law for an exempt foreign government agency, for the purposes of subparagraph 12-402(3)(f)(ii) of Schedule 1 of the TAA 1953.

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