Edited version of your private ruling

Authorisation Number: 1012497758831

Ruling

Subject: Managed investment trusts

Question and Answer

Is Entity A an entity that is covered by the requirements under paragraph 12-402(3)(f) of Schedule 1 to the Tax Administration Act 1953 (TAA 1953)(dealing with entities established by, or for, an exempt foreign government agency, with the principal purpose of funding pensions for citizens or contributors of a foreign country)?

Yes.

This ruling applies for the following periods

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

Year ended 30 June 2018

The scheme commenced on

1 July 2013

Relevant facts and circumstances

Entity A is a foreign Government entity that operates as a pension / employee-orientated association in the foreign country (Country X). Its members include crime prevention officers and associated civilian employees. The decision-making body of Entity A is mainly comprised of officials from the crime prevention agency in Country X, which is under the control of the Country X government administration.

The primary activities of Entity A are the operation of retirement pension funds for members of crime prevention force. The members of Entity A, namely the crime prevention force, regularly contribute funds to the pension schemes operated by Entity A which also carries on an incidental business for the welfare of its members.

The members do not have day to day control over the operation of Entity A

The relevant articles of Entity A's governing law (The Act) and its Article of Incorporation are translated into English and set out below:

The welfare activities are incidental to the pension activities. Moreover, the Country X Government may provide the Entity A with a subsidy pursuant to its Article of Incorporation so that it can guarantee a fixed return on the retirement pension funds to its crime prevention force members.

As noted above, the primary activities of Entity A are the operation of retirement pension funds. This is supported by the following facts:

· The activities generating each item of operating revenue are carried on to raise the funds to provide the benefits to the members of Entity A (principally pension proceeds);

· All the profits of Entity A, after taxing into account the general and administration expenses, are used to provide the benefits to the members (principally pension proceeds); and

· Out of all the payments to members, approximately x% represents the provision of benefits to those members (principally pension proceeds) for the year ended December 31, 20XX, with the remaining payments relating to the incidental payment of gift money and condolences.

Relevant legislative provisions

Taxation Administration Act 1953 Subdivision 12-H of Schedule 1

Taxation Administration Act 1953 Paragraph 12-402(3)(f) of Schedule 1

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

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.

Section 12-402 of Schedule 1 to the TAA 1953 establishes the widely held requirements for the entities including in the section. Subsection 12-402(3) of Schedule 1 of TAA 1953 lists the kinds of entity that are covered by the section.

Paragraph 12-402(3)(f) of Schedule 1 to the TAA 1953 specifies the following:

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, if:

(i) the entity is a fund established by an exempt foreign government agency; or

(ii) the entity is established under a foreign law for an exempt foreign government agency; or

(iii) the entity is a *wholly-owned subsidiary of an entity mentioned in subparagraph (i) or (ii);

Entity A is a foreign government entity, the principal purpose of which is to fund pensions (including disability and similar benefits) for the citizens or other contributors of a foreign county, for the following reasons:

· Entity A is a welfare oriented association in a foreign country (Country X) formed in accordance with the laws of that country. Entity A is therefore an 'entity' for these purposes.

· Both the Entity A Act and its Article of Incorporation permits Entity A to raise funds and invest those funds in order to pay the pension benefits. Entity A is also, therefore, an 'entity' which is a 'fund' for these purposes.

· As noted above, Entity A principally provides pension benefits to crime prevention members. This is consistent with both the Entity A Act and its Article of Incorporation describing its number one purpose as the payment/provision of pension proceeds to the members.

· The actual activities of Entity A predominately consist of the payment of pension proceeds to members (consistent with its above purpose). Therefore, Entity A exists for the principal purpose of funding pensions.

· Although Entity A also carries on an incidental business for the welfare of its members, this does not detract from identifying its principal purpose as being the funding of pensions as outlined above. Further, such welfare activities are also, in any case, consistent with the provision of 'disability and similar benefits' as specifically contemplated by paragraph 12-402(3)(f) of Schedule 1 to the TAA 1953.

Under paragraph 12-402(3)(f) of Schedule 1 to the TAA 1953, the relevant entity must also be established by, or for, an exempt foreign government agency.

The phrase 'exempt foreign government agency' is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as:

a) the government of a foreign country, or of part of a foreign country; or

b) an authority of the government of a foreign country, if the authority is of a similar nature to an authority that is an *exempt Australian government agency; or

c) an authority of the government of part of a foreign country, if the authority is of a similar nature to an authority that is an *exempt Australian government agency.

Entity A was established by statute for the benefit of the Country X crime prevention members. The crime prevention is part of the Country X government administration which is an 'authority' of the Country X government.

In Commissioner of Taxation v Bank of Western Australia; State Bank of New South Wales (1995) 96 ATC 4009, the Full Federal Court considered the ordinary meaning of the term 'authority' in the context of the former Sales Tax (Exemptions and Classifications) Acts of 1935 and 1992.

The Court nevertheless considered the broader definition of the term, concluding that the general characteristic of an "authority" is a body "which has the right or power to exercise authority or command" (96 ATC 4009 at 4025 and 4026).

Although stating that 'it is fair to say that no test of universal applicability has emerged', Justice Hill quoted the following passage from the judgement of Gibbs J in Committee of Direction of Fruit Marketing v Australian Postal Commission (1980) 144 CLR 577 at 580 as being "the closest any judicial comment has come to attempting a definition of the word 'authority':

The expression 'authority of a State' refers to a body which exercises power derived from or delegated by the State, but the fact that a body is established under State law and possesses power conferred upon it by State law will not necessarily mean the body is an authority of a State. … In all cases, it is necessary to have regard to all the relevant circumstances in order to determine the character of the body in question.

Justice Hill (with whom Wilcox and Drummond JJ agreed) listed several propositions that can be derived from the decided cases that consider the ordinary meaning of the term "authority", including the fact that "a private body, corporate or unincorporated, established for profit will not be an authority" (96 ATC 4009 at 4026). However, another proposition listed by the Court was that '[a]t least where the question is whether a body is a 'public authority' the body must exercise control power or command for the public advantage or execute a function in the public interest' (96 ATC 4009 at 4027).

In this regard, the crime prevention force is similar to the equivalent authorities that exist in Australia at both a State and Federal level. As such, it is of a similar nature to an authority that is an 'exempt Australian government agency'.

Further, Entity A is itself an 'authority' of the government of a foreign country on the basis that Entity A executes a function in the public interest in the form of accepting contributions and operating and managing the association to principally provide for pension benefits, and other incidental welfare benefits to Country X citizens of the public service. This is consistent with the following facts relating to Entity A:

· Entity A is an association established to pay pensions in a foreign country formed in accordance with the laws of that country.

· Entity A principally provides pension benefits to members. The members of Entity A are crime officers.

· The above members regularly contribute funds to the pension schemes operated by Entity A.

· Entity A also carries on an incidental business for the welfare of those members as well.

· Further, the Country X Government may provide Entity A with a subsidy pursuant to its articles of incorporation so that it can guarantee a fixed return on the retirement pension funds to its members.

Based on the above, Entity A has been established for an exempt foreign government agency and can be said to be an authority of the government of a foreign country and therefore represents an exempt foreign government agency within the meaning of subsection 995-1 of the ITAA 1997.

Accordingly, Entity A is an entity that is covered by the requirements under paragraphs 12-402(3)(f)(i) and (ii) of Schedule 1 to the TAA 1953.

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