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Edited version of your written advice
Authorisation Number: 1051259402719
Date of advice: 27 July 2017
Ruling
Subject: Foreign Super Fund - Exemption from Income tax/Withholding tax.
Question 1
Is the Foreign Super Fund (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 not assessable and not exempt income under section 128D of the ITAA 1936?
Answer
Yes
This ruling applies for the following periods:
Year ended 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
The scheme commences on:
1 July 2016
Relevant facts and circumstances
The applicant has applied for a private ruling for a superannuation fund for foreign residents.
The superannuation fund concerned is the Fund.
The application includes the following documentation:
● Letter from the Country X tax authorities stating that the Fund is exempt from income tax in Country X and is also a resident of Country X for the purposes of taxation.
● A copy of the Fund Trust Agreement (the Agreement) and the Fund Guide (the Guide).
● The documents provide details of the establishment of the fund, the benefits provided by the fund, and the rules governing the fund.
● A statement from the trustee of the fund 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 Income Tax Assessment Act 1997 (ITAA 1997) and
− a tax offset has not been allowed or is not allowable for such an amount.
● A copy of the Fund Financial Statements for year 2015.
● A copy of the Fund Financial Statements for year 2014.
The amount of pension is based on members’ years of Credited Service and the contributions member and member’s Employing Company contributed to the fund.
In the event that members break service, if a member is under age 55, they becomes a Deferred Plan Member. The member can leave the pension in the fund and receive a monthly pension when retire (commencing at age 65).
Alternatively, the member can receive a lump sum transfer to a prescribed plan such as a Locked-in Retirement Account.
Examples of Locked-in Retirement Accounts are provided in the Guide.
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 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 of the Fund via the Agreement, the Guide and financial statements for years 2014 and 2015 indicate 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 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 non-assessable non-exempt income.
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