Edited version of your written advice

Authorisation Number: 1012740965375

Ruling

Subject: Foreign superannuation fund and fringe benefits tax

Questions

1. Will the pension fund established overseas be a 'foreign superannuation fund' for the purposes of the Income Tax Assessment Act 1997 (ITAA 1997)?

2. Will the taxpayer's contributions to the pension fund for one of their employees be subject to fringe benefits tax?

Answers

1. Yes.

2. No.

This ruling applies for the following periods

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commenced on

1 July 2014

Relevant facts and circumstances

The Company is a resident entity of Australia.

One employee (the Employee) will be assigned to work from the Company's overseas parent company.

The Employee is a foreign resident.

The Employee will enter Australia on a temporary visa.

The Employee's spouse will also enter Australia on a temporary visa.

Neither the Employee nor his spouse have been granted permanent residency in Australia.

The Employee's overseas pension fund (the Fund) is established overseas.

The central management and control for the Fund is located overseas.

Under the rules of the Fund, members can withdraw from the Fund from the age of 55. It is not possible to withdraw before age 55, unless it is for retirement as a result of ill health.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

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

Income Tax Assessment Act 1997 Subsection 995-1(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

Summary

On the basis of the information provided, the Commissioner considers the Fund to be a foreign superannuation fund for Australian income tax purposes. The benefit arising from the taxpayer making a contribution to the Fund will not be subject to fringe benefits tax.

Detailed reasoning

Foreign superannuation fund

A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 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.

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 Australia at that time; and

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

(c) at that time either the fund had 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 interests 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.

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.

Thus, a provident, benefit, superannuation or retirement fund that is established outside of Australia and has its central management and control outside of Australia would qualify as a foreign superannuation fund.

Provident, benefit, superannuation or retirement fund

The High Court examined both the terms superannuation fund and fund in Scott v. Commissioner of Taxation (No. 2) (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 there from 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) (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 when the events occur:

_ on or after retirement from gainful employment; or

_ attaining a prescribed age; and

_ 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 SIS Act (and the SIS Regulations) provide 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, 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.

Under the rules of the Fund, members can withdraw from the Fund from the age of 55. It is not possible to withdraw before age 55 unless it is for retirement as a result of ill health. Therefore, benefits are only paid on retirement, death and invalidity and meet the definition of providing 'provident, benefit or superannuation fund' benefits.

The Fund is established outside of Australia with its central management and control outside of Australia.

Therefore, on the basis of the information provided, the Commissioner considers the Fund to be a foreign superannuation fund as defined in subsection 995-1(1) of the ITAA 1997.

Fringe Benefits Tax

The Company's contribution to the Fund will not be subject to fringe benefits tax where the benefit arising from the contribution is excluded from the definition of a fringe benefit.

The definition of a fringe benefit in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 excludes a benefit constituted by:

the making of a contribution to a foreign superannuation fund (within the meaning of the Income Tax Assessment Act 1997) where:

(A) the contribution is for the purpose of making provision for superannuation benefits for the employee (whether or not the benefits are payable to a dependant of the employee if the employee dies before or after becoming entitled to receive the benefits); and

(B) the employee is a temporary resident (within the meaning of the Income Tax Assessment Act 1997) when the contribution is made;

We have established that the Fund meets the definition of a foreign superannuation fund. The taxpayer's contributions to that fund will be for the purpose of making provision for superannuation benefits for the employee who is a temporary resident as defined in subsection 995-1(1) of the ITAA 1997.

Therefore the benefit arising from the Company making a contribution to the foreign superannuation fund will not be a fringe benefit and will not be subject to fringe benefits tax.

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