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Edited version of your written advice
Authorisation Number: 1051274195599
Date of advice: 28 August 2017
Ruling
Subject: A foreign superannuation fund and exemption from withholding/income tax
Question 1
Is the trustee of 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 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 period(s)
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
Year ended 30 June 2018
Year ended 30 June 2019
Year ended 30 June 2020
Year ended 30 June 2021
The scheme commences on
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Relevant facts and circumstances
The applicant has applied for a private ruling for a superannuation fund for foreign residents.
The application includes the following documentation:
• Letter from the tax authorities stating the fund was exempt from income tax in that country.
• A copy of the Superannuation Act 1972 which governs the pension scheme, the Local Government Scheme Regulations 2013, Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007 which state the rules of the fund, details of the establishment of the fund, the benefits provided by 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 ITAA 1997 and
a tax offset has not been allowed or is not allowable for such an amount.
• A copy of the financial statements of the fund.
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
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 fund is administered in accordance with the Local Government Pension Scheme. The rules concerning the fund are contained in the Local Government Pension Scheme Regulations 2013 which are made in the exercise of powers conferred by sections 7 and 12 of, and Schedule 3 to the Superannuation Act 1972.
The fund generally does not allow for early release of contributions from the fund until an age related condition is reached. There are a few exceptions to this case;
● Member’s employment terminated by ill-health can receive immediate payment of benefits (section 35 of the Regulations)
● If a member’s qualifying service in the Scheme is less than two years then they are entitled to be repaid their contributions (section 18 of the Regulations)
For the period before 2013, the rules were contained in the Local Government Pension Scheme (Benefits, Membership and Contributions) Regulations 2007. These regulations contain no material differences that would prohibit the fund from being a foreign superannuation fund for the relevant years. The previous regulations made it harder for members to access their benefits early as it does not include a similar provision to section 18 above.
Both sets of regulations also do not provide that loans are payable to members from their pension account. Members can only access their contributions in the limited exceptions mentioned above. We consider that these limited exceptions do not prevent the fund from being 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 not assessable income.
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