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Edited version of your written advice
Authorisation Number: 1051233307815
Date of advice: 21 November 2017
Ruling
Subject: Superannuation fund for foreign resident – withholding tax exemption
Question 1
Is the Fund excluded from liability to withholding tax on its interest and/or dividend income derived from Australia under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer
Yes.
Question 2
Is interest and/or dividend income derived from Australia by the Fund non-assessable and non-exempt income under section 128D of the ITAA 1936?
Answer
Yes.
This ruling applies for the following periods:
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
The scheme commenced on
15 October 2010
Relevant facts and circumstances:
1. The fund provides pensions to qualified members who contribute.
2. It is situated in Country X.
3. The fund is governed generally by the Country X Pensions Act (Pension Act).
4. The Articles of Association and Pension Regulations (Pension Regulations) provide details of the establishment of the fund, the benefits provided by the fund and the rules governing the fund.
5. A statement from the trustee of the fund was provided confirming 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.
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
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
Perusal of the rules indicates that the fund satisfies the definition of a superannuation fund for foreign residents for the purposes of section 118-520 of the ITAA 1997.
The Pension Regulations detail that the retirement pension provided starts at retirement date. A member of the fund does have the ability to opt for an advancement of their pension to a maximum of x years before the retirement date; however they do have to declare to the fund that they have stopped working.
The provisions do not provide general early access to the member’s contributions before reaching the retirement date. They do give the administering Board the ability to deviate from the provisions of the regulations in special cases. These special cases are not defined however the Article itself refers to the provision being a hardship clause.
The Pension Act and Pension Regulations do not provide the ability for the fund to loan to members.
The statement by the trustee of the fund also confirms that the requirements of this definition are met. Accordingly, the interest and/or dividend income of the fund is excluded from withholding tax and is not assessable income.
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