Edited version of your private ruling

Authorisation Number: 1012601840039

Ruling

Subject: 'Foreign superannuation fund' and 'Superannuation fund for foreign residents'

Question 1

Is the Administrator a 'foreign superannuation fund' as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

Question 2

Is the Administrator a 'superannuation fund for foreign residents' as defined in section 995-1 of the ITAA 1997?

Answer

Yes.

Question 3

If the answer to Question 1 is yes, is the Administrator a 'foreign superannuation fund' for the purposes of the withholding rules for Managed Investment Trusts pursuant to section 12-402 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953)?

Answer

Yes.

Question 4

If the answer to Question 2 is yes, is the Administrator a 'superannuation fund for foreign residents' for the purposes of the exemption from liability to interest and dividend withholding tax pursuant to paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

This ruling applies for the following periods:

xx/xx/xxxx to xx/xx/xxxx

The scheme commences on:

xx/xx/xxxx

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.

This ruling applies to the Plan, the Administrator and any entity that administers the Plan in the future, for as long as the proposed ruling remains current.

Scheme

The scheme that is the subject of the ruling is identified and described as follows:

1. The Administrator is the administrator of the Plan, an indefinitely continuing fund and a provident, benefit, superannuation or retirement fund.

2. The Plan was established overseas. It was formed by a foreign government for the benefit of employees in xxxx and administration of the Plan was transferred to the Administrator on xx/xx/xxxx.

3. By statute, a fiduciary duty is owed by the Administrator, which obliges it to administer the Plan and invest assets with the same prudence of a person dealing with another's property.

4. The Administrator was established overseas. The Administrator is a corporation created under statute and as administrator of a registered plan the Administrator is not subject to income tax in the country where it was established.

5. The central management and control of the Administrator is carried on outside Australia by individuals none of whom is an Australian resident.

6. An amount paid to the Administrator or set aside for it 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.

7. Contributions are made by active members of the Administrator and by the Plan Sponsors on behalf of the active members. The contributions are then being invested with any gains being credited to the accounts of the members.

Assumption

This ruling is given on the basis of the following assumption:

• The Administrator was established and is maintained, at the relevant times, only to provide benefits for individuals who are not residents of Australia.

Relevant legislative provisions

Acts Interpretation Act 1901 section 15AB

Income Tax Assessment Act 1997 section 118-520

Income Tax Assessment Act 1997 subsection 118-520(1)

Income Tax Assessment Act 1997 paragraph 118-520(1)(a)

Income Tax Assessment Act 1997 paragraph 118-520(1)(b)

Income Tax Assessment Act 1997 paragraph 118-520(1)(c)

Income Tax Assessment Act 1997 paragraph 118-520(1)(d)

Income Tax Assessment Act 1997 subsection 118-520(2)

Income Tax Assessment Act 1997 section 295-95

Income Tax Assessment Act 1997 subsection 295-95(2)

Income Tax Assessment Act 1997 subsection 995-1(1)

Income Tax Assessment Act 1936 subsection 6(1)

Taxation Administration Act 1953 subsection 3AA(2)

Taxation Administration Act 1953 Schedule 1 paragraph 12-400(1)(b)

Taxation Administration Act 1953 Schedule 1 section 12-402

Superannuation Industry (Supervision) Act 1993 section 10

Superannuation Industry (Supervision) Act 1993 subsection 10(1)

Reasons for decision

These reasons for decision accompany the Notice of private ruling for the Administrator in its capacity as the administrator of the Administrator.

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

Question 1: Foreign superannuation fund

'Foreign superannuation fund' is defined at section 995-1 of the ITAA 1997 as:

(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.

Accordingly, in order to satisfy the requirements of being a foreign superannuation fund, it must be demonstrated that the Administrator is:

(i) a 'superannuation fund'; and

(ii) not an 'Australian superannuation fund'.

A 'superannuation fund' is defined under section 995-1 of the ITAA 1997 as having the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SIS Act).

Section 10 of the SIS Act defines 'superannuation fund' as:

(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

Section 995-1 of the ITAA 1997 defines 'public sector superannuation scheme' as having the same meaning as in section 10 of the SIS Act which defines 'public sector superannuation scheme' as:

a scheme for the payment of superannuation, retirement or death benefits, where the scheme is established:

(a) by or under a law of the Commonwealth or of a State or Territory; or

(b) under the authority of:

(i) the Commonwealth or the government of a State or Territory; or

(ii) a municipal corporation, another local governing body or a public authority constituted by or under a law of the Commonwealth or of a State or Territory.'

As the Administrator has been established under the laws of xxxxx and not under the authority of the Australian Commonwealth or any Australian state or territory or municipal body etc, the Administrator is not a 'public sector superannuation scheme' as defined for the purposes of the second limb of the definition of 'superannuation fund' in section 10 of the SIS Act.

Accordingly, the question is whether the Administrator is considered to be a 'fund' that is 'indefinitely continuing and a provident, benefit, superannuation or retirement fund' as stipulated in the first limb of the definition of 'superannuation fund' in section 10 of the SIS Act. These critical terms and phrases are discussed below:

(i) Fund

The term 'fund' is not defined in either the ITAA 1936 or the ITAA 1997 and should therefore be given its ordinary meaning subject to the context in which it appears and having regard to any relevant case law authorities as stipulated in section 15AB of the Acts Interpretation Act 1901.

To this end, the Australian Oxford Dictionary (2004, Oxford University Press, Melbourne) defines the term 'fund' as a:

'permanent stock of something ready to be drawn upon...a stock of money, especially one set apart for a purpose'.

In the High Court of Australia decision of Scott v FC of T (1966) 14 ATD 333, Windeyer J expressed the view that 'fund' in the context of 'superannuation fund' ordinarily meant 'money (or investments) set aside and invested, the surplus income therefore being capitalised'.

Hill J in Walstern Pty Ltd v. Commissioner of Taxation (2003) 138 FCR 1 subsequently cited Windeyer J's views in Scott v FC of T where he stated that:

'for present purposes, the point is the need for 'money' or 'other property to constitute a fund.'

In relation to the Administrator, contributions are being made by active members of the Administrator and by the Plan Sponsors on behalf of the active members. The contributions are then being invested with any gains being credited to the accounts of the members. Therefore, the Administrator is a 'fund' for the purposes of section 10 of the SIS Act.

(ii) Indefinitely continuing

The phrase "indefinitely continuing" is not defined in either the ITAA 1936 or the ITAA 1997 and should therefore be given its ordinary meaning subject to the context in which it appears and having regard to any relevant case law authorities. The Australian Oxford Dictionary defines:

• 'indefinite' as vague, undefined and unlimited and

• 'indefinitely' as for an unlimited time and in an indefinite manner.

The Administrator has provided a statement which confirms that it is 'indefinitely continuing'. This statement has been made on the basis that there is no clause in that its constituent instrument which requires or contemplates that it will be terminated or wound up after a specified period or a specific date.

(iii) Provident, benefit, superannuation or retirement fund

Although the expression 'provident, benefit, superannuation or retirement fund' is not defined in either the ITAA 1936 or ITAA 1997, its meaning was considered in Walstern Pty Ltd v FCT (2003) 138 FCR 1 where it was concluded (citing Windeyer J in Scott v Commissioner of Taxation (1966) 14 ATD 333 at 352) that:

'there is no 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.'

Further, the High Court in Mahoney v FCT (1967) 10 AITR 463 broadly identified that:

• 'provident' refers to the making of provision against possible or expected future events;

• 'benefit' refers to the making of provision for benefits of some specific future kind, such as a funeral benefit, rather than benefits in a general sense;

• 'superannuation' refers to the making of provision for financial support for an employee, or for the employee's estate or dependents, to arise on the employee's retirement, death or other cessation of employment; and

• The word 'retirement' in this context carries its ordinary meaning.

Considering each of these requirements in turn, the Administrator's purpose and functions cover the following terms:

• 'provident': the Administrator makes provisions against possible or expected future events by providing for the financial needs of teachers from the overseas jurisdiction on their retirement;

• 'benefit': the Administrator makes provisions for benefits of some specific future kind by providing income in the form of a pension to identified persons being retired teachers from the overseas jurisdiction; and

• a 'superannuation or retirement fund': the Administrator makes provision for the financial support for retired teachers (and their nominated estate or dependents) following their retirement, death or other cessation of employment.

The Administrator (as an indefinitely continuing fund and a provident, benefit, superannuation or retirement fund) thus complies with the relevant criteria of the first limb of section 10 of the SIS Act. Accordingly, the Administrator is a superannuation fund for the purposes of the definition of 'foreign superannuation fund'.

However, a superannuation fund will only qualify as a foreign superannuation fund where it is also not an Australian superannuation fund.

Subsection 295-95(2) of the ITAA 1997 defines 'Australian superannuation fund' as follows:

A *superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if:

(a) the fund was established in Australia, or any asset of the fund is situated in Australian at that time;

(b) at that time, the central management and control of the fund is ordinarily in Australia; and

(c) at that time either the fund has no member covered by subsection (3) (an active member) or at least 50% of:

(i) the total *market value of the fund's assets attributable to *superannuation interest held by active members; or

(ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members;

is attributable to superannuation interests held by active members who are Australian residents.'

The Administrator has confirmed that its central management and control is carried outside Australia by individuals none of whom is an Australian resident. The Administrator thus fails to meet the requirement under paragraph 295-95(2)(b) of the ITAA 1997.

All paragraphs of subsection 295-95(2) of the ITAA 1997 must be satisfied in order for the Administrator to be considered an Australian superannuation fund. As paragraph 295-95(2)(b) of the ITAA 1997 is not satisfied, the Administrator is not an 'Australian superannuation fund'.

The Administrator is an indefinitely continuing fund, and a provident, benefit, superannuation or retirement fund thus satisfying the definition of a 'superannuation fund' under subsection 10(1) of the SIS Act. It is also a "superannuation fund' that is not an 'Australian superannuation fund'.

The Administrator has thus satisfied each of the elements of the definition of 'foreign superannuation fund' in section 995-1 of the ITAA 1997. Accordingly, the Administrator is a 'foreign superannuation fund' for the purposes of section 995-1 of ITAA 1997.

Question 2: Superannuation fund for foreign residents

'Superannuation fund for foreign residents' is defined in subsection 995-1(1) of the ITAA 1997 as having the meaning given by section 118-520 of the ITAA 1997.

Under subsection 118-520(1) of the ITAA 1997 a fund is a 'superannuation fund for foreign residents' at a particular 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 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.

As per detailed analysis earlier in respect of Question 1, the Administrator has satisfied the requirements of paragraph 118-520(1)(a) of the ITAA 1997.

In respect of paragraphs 118-520(1)(b) to (d) of the ITAA 1997, the Administrator has confirmed that:

• the Administrator was established overseas;

• the Administrator has provided its consent to the Australian Taxation Office preparing this Ruling on the assumption that the Administrator was established and is maintained only to provide benefits for individuals who are not Australian residents; and

• the central management and control of the Administrator is carried on outside Australia by individuals, none of whom is an Australian resident.

Accordingly, the Administrator satisfies the criteria in subsection 118-520(1) of the ITAA 1997.

Under subsection 118-520(2) of the ITAA 1997, 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.

The Administrator has stated that an amount paid to the fund or set aside for it has not been or cannot be deducted under the ITAA 1997. The Administrator has also stated that a tax offset has not been allowed or is not allowable for such an amount. Therefore, subsection 118-520(2) of the ITAA 1997 has no application.

Accordingly, the Administrator satisfies the criteria in subsection 118-520(2) of the ITAA 1997.

Having satisfied the criteria in section 118-520 of the ITAA 1997, the Administrator is a "superannuation fund for foreign residents" under section 995-1 of the ITAA 1997.

Question 3: Foreign superannuation fund for the purposes of the Managed Investment Trust (MIT) withholding rules in section 12-402 of Schedule 1 to the TAA 1953

Section 12-385 under Division 12 of Schedule 1 to the TAA 1953 deals with withholding by MITs. Under the MIT regime, concessional tax treatment is available on certain distributions made to foreign residents from Australian MITs.

In order to qualify as a MIT, and therefore be able to obtain concessional tax treatment, the MIT must satisfy certain 'widely-held requirements' under section 12-402 of Schedule 1 to the TAA 1953. Broadly, the MIT is required to be held by a certain number of widely held entities (including foreign superannuation funds) at the time the distribution is made.

Therefore, in order for the Administrator to determine whether its participation in a MIT may be included in determining whether the widely-held requirements are satisfied, it must be determined whether the Administrator is a "foreign superannuation fund" for the purposes of paragraph 12- 402(3)(b) of Schedule 1 to the TAA 1953.

According to subsection 2-10(2) in Division 2 of the ITAA 1997, most defined terms in the ITAA 1997 are identified by an asterisk appearing at the start of the term and the footnote that goes with the asterisk contains a signpost to the Dictionary definitions starting at section 995-1 of the ITAA 1997. 'Foreign superannuation fund' is an asterisked term in subsection 12-402(3) of Schedule 1 to the TAA 1953. The footnote that goes with it states as follows:

'For definition, see section 995-1 of the Income Tax Assessment Act 1997.'

Also as per subsection 3AA(2) of the TAA 1953, an expression has the same meaning in Schedule 1 as in the ITAA 1997.

Accordingly, as the answer to Question 1, being whether the Administrator is a 'foreign superannuation fund' as defined in section 995-1 of the ITAA 1997 is in the affirmative, then the Administrator is also a 'foreign superannuation fund' for the purposes of section 12-402 of Schedule 1 to the TAA 1953.

Question 4: 'Superannuation fund for foreign residents' for the purposes of paragraph 128B(3)(jb) of ITAA 1936

Section 128B under Division 11A of the ITAA 1936 deals with liability to withholding tax on dividends, interest and royalties paid to non-residents.

Paragraph 128B(3)(jb) of the ITAA 1936 exempts from withholding tax interest and dividend (including non-share dividend) income derived by a non-resident that is a 'superannuation fund for foreign residents'.

'Superannuation fund for foreign residents' is defined in subsection 6(1) of the ITAA 1936 as having the meaning given by subsection 995-1(1) of the ITAA 1997.

As the answer to Question 2, being whether the Administrator is a 'superannuation fund for foreign residents' as defined in section 995-1 of the ITAA 1997 is in the affirmative, the Administrator is also a 'superannuation fund for foreign residents' for the purposes of the exemption from liability to interest and dividend withholding tax pursuant to paragraph 128B(3)(jb) of the ITAA 1936.

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