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Edited version of your written advice
Authorisation Number: 1012949444373
Date of advice: 2 February 2016
Ruling
Subject: Foreign super fund withholding
Question 1
Is the trustee of the foreign super fund excluded from liability to withholding tax on its interest and/or dividend income derived from Australia under paragraph 128B(3)(jb) of the ITAA 1936?
Answer:
No.
Question 2
Is interest and/or dividend income derived from Australia by the trustee of the foreign super fund not assessable income of the fund under section 128D of the ITAA 1936?
Answer:
No.
This ruling applies for the following period:
1 July 2015 to 30 June 2020.
The scheme commenced on
1 July 2015.
Relevant facts and circumstances:
The applicant has applied for a private ruling for a superannuation fund for foreign residents.
The application includes:
• A statement that:
• the fund is an indefinitely continuing fund and a provident, benefit, superannuation or retirement fund,
• the fund was established in a foreign country,
• the fund was established, and is maintained, only to provide benefits for individuals who are not Australian residents,
• the central management and control of the fund is carried on outside Australia by entities none of whom is an Australian resident,
• an amount paid to the fund or set aside for the fund 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.
• Financial statements of the entity for the 2014 and 2015 financial years.
The financial statements indicate the fund provides pension and healthcare benefits to its members.
Relevant legislative provisions:
Income Tax Assessment Act 1936 Paragraph 128B(3)(jb).
Income Tax Assessment Act 1936 Section 128D.
Income Tax Assessment Act 1997 Section 118-520.
Reasons for decision
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
The entity has provided a statement indicating it meets the definition of a superannuation fund for foreign residents that is set down in section 118-520 of the ITAA 1997. However, perusal of available information indicates the entity does not meet the requirements of the definition.
For an entity to meet the definition of a superannuation fund for foreign residents, it must meet all of the requirements set down in section 118-520 of the ITAA 1997. This includes the requirement, that the entity is a provident, benefit, superannuation or retirement fund (subparagraph (1)(a)(ii) of section 118-520 of the ITAA 1997).
The terms 'provident', 'benefit', 'superannuation' or 'retirement fund' are not defined in the legislation but have been the subject of judicial consideration. In this regard, the courts have held that for a fund to be a 'provident, benefit, superannuation or retirement fund', the fund's sole purpose must be to provide superannuation benefits.
Considering the above, the entity does not meet the requirements of the definition of a superannuation fund for foreign residents for the purposes of section 118-520 of the ITAA 1997 because, in addition to retirement benefits, the entity provides healthcare benefits to its members.
Accordingly, the interest and/or dividend income of the entity is not excluded from withholding tax and is assessable income in Australia.
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