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Edited version of your private ruling
Authorisation Number: 1012543713082
Ruling
Subject: Contributions made to a pension fund
Question
Are salary sacrifice contributions made by an employer to an overseas pension fund excluded from the definition of a 'fringe benefit' at subsection 136(1) of the Fringe Benefits Tax Act 1986 in accordance with subparagraph (j)(ii)?
Answer
No.
This ruling applies for the following periods:
1 July 2013 to 30 June 2017
The scheme commences on:
1 July 2013
Relevant facts and circumstances
An employee based overseas has been seconded to Australia for a period of X years to work in Australia.
For the duration of the employee's secondment to Australia the employee's salary will be paid by the Australian employer.
The employee wishes to continue to contribute to an existing account with an overseas pension fund whilst based in Australia.
The employer is proposing to make contributions to the overseas pension fund for the benefit of the employee by way of salary sacrifice for the duration of the employee's secondment to Australia.
You have provided a copy of the Fund's Articles.
You provide that the overseas pension fund may make provision for a member in certain circumstances.
Relevant legislative provisions
Fringe Benefits Tax Act 1986 Subsection 136(1)
Income Tax Assessment Act 1997 Subsection 995-1(1)
Superannuation Guarantee (Administration) Act 1993 Subsection 27(1)
Superannuation Industry (Supervision) Act 1993 Section 10
Superannuation Industry (Supervision) Act 1993 Section 19
Superannuation Industry (Supervision) Act 1993 Section 62
Reasons for decision
Are salary sacrifice contributions made by an employer to an overseas pension fund excluded from the definition of a 'fringe benefit' at subsection 136(1) of the Fringe Benefits Tax Act 1986 in accordance with subparagraph (j)(ii)?
The definition of a 'fringe benefit' at subsection 136(1) of the Fringe Benefits Tax Act 1986 (FBTAA) provides that a 'benefit' constituted by the making of a contribution to a fund that is not a 'foreign superannuation fund' within the meaning of the ITAA 1997 will not be excluded from the definition of a 'fringe benefit' in accordance with subparagraph (j)(ii).
Subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) defines a 'foreign superannuation fund' as follows:
(a) a *superannuation fund is a foreign superannuation fund at a time if the fund is not an *Australian superannuation fund at that time; and
(b) a superannuation fund is a foreign superannuation fund for an income year if the fund is not an Australian superannuation fund for the income year.
Therefore, for a fund to be a 'foreign superannuation fund' a prerequisite is that it must be a 'superannuation fund'.
Subsection 995-1(1) of the ITAA 1997 defines a 'superannuation fund' as having the same meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), that is:
(a) a fund that:
(i) is an indefinitely continuing fund; and
(ii) is a provident, benefit, superannuation or retirement fund; or
(b) a public sector superannuation scheme.
The High Court examined both the terms 'superannuation fund' and 'fund' in Scott v Commissioner of Taxation of the Commonwealth (No. 2) (1966) 10 AITR 290; (1966) 40 ALJR 265; (1966) 14 ATD 333 (Scott). In that case, Justice Windeyer stated:
… I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion "fund", I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalised. I do not put this forward as a definition, but rather as a general description.
The issue of what constitutes a 'provident, benefit, superannuation or retirement fund' was discussed by the Full Bench of the High Court in Mahony v Commissioner of Taxation (Cth) (1967) 41 ALJR 232; (1967) 14 ATD 519 (Mahony). In that case, Justice Kitto held that a fund had to exclusively be a 'provident, benefit or superannuation fund' and that 'connoted a purpose narrower than the purpose of conferring benefits in a completely general sense …'. This narrower purpose meant that the benefits had to be 'characterised by some specific future purpose' such as the example given by Justice Kitto of a funeral benefit.
Furthermore, Justice Kitto's judgement indicated that a fund does not satisfy any of the three provisions, that is, 'provident, benefit or superannuation fund', if there exist provisions for the payment of benefits 'for any other reason whatsoever'. In other words, though a fund may contain provisions for retirement purposes, it could not be accepted as a superannuation fund if it contained provisions that benefits could be paid in circumstances other than those relating to retirement.
In section 62 of the SIS Act, a regulated superannuation fund must be 'maintained solely' for the 'core purposes' of providing benefits to a member:
· on or after the member's retirement from gainful employment
· on the member attaining a prescribed age, or
· on the member's death (this may require the benefits being passed on to a member's dependants or legal representative).
Notwithstanding the SIS Act applies only to 'regulated superannuation funds' (as defined in section 19 of the SIS Act), and foreign superannuation funds do not qualify as regulated superannuation funds as they are established and operate outside Australia, the Commissioner views the SIS Act (and the SIS Regulations) as providing guidance as to what 'benefit' or 'specific future purpose' a superannuation fund should provide.
In view of the legislation and the decisions made in Scott and Mahony, the Commissioner's view is that for a fund to be classified as a superannuation fund, it must exclusively provide a narrow range of benefits that are characterised by some specific future purpose. That is, the payment of superannuation benefits upon retirement, invalidity or death of the individual or as specified under the SIS Act.
In the present case, the employee wishes to continue to contribute to an existing account with the overseas pension fund whilst based in Australia.
You provide that the overseas pension fund may make provision for a member in certain circumstances. Given these circumstances, it can be seen the overseas pension fund is not exclusively a 'provident, benefit or superannuation fund' because it does not provide benefits for the specific future purposes of the individual's retirement. Members of the overseas pension fund can use the benefit for other purposes.
The overseas pension fund is not a bona fide 'superannuation fund' because its sole purpose is not to provide monetary benefits upon retirement age. Further, a member may also request an advance of up to 30% of their individual capital if they have been a member for greater than eight years for other needs. The benefits in the overseas pension fund may be used for purposes other than for retirement. It is considered that entitlements in the overseas pension fund have not been set aside for purposes of the kind outlined in section 62 of the SIS Act.
It is noted that the employee has indicated that he would not withdraw benefits in respect of contributions made to the overseas pension fund as a consequence of employment with the employee prior to retirement. However, this does not change the fact that on the basis of the information provided, the Commissioner considers the overseas pension fund is not a 'superannuation fund' as defined in subsection 995-1(1) of the ITAA 1997.
As the overseas pension fund is not a 'superannuation fund' as defined in subsection 995-1(1) of the ITAA 1997, it is not a 'foreign superannuation fund' within the meaning of the ITAA 1997.
Therefore, a 'benefit' constituted by the making of a contribution by the employer to the overseas pension fund will not be excluded from the definition of a 'fringe benefit' at subsection 136(1) of the FBTAA in accordance with subparagraph (j)(ii).
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