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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4.

Edited version of your written advice

Authorisation Number: 1051274736858

Date of advice: 5 September 2017

Ruling

Subject: Foreign Super Fund - Exemption from Income tax/Withholding tax

Question 1

Is the Plan 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

No

Question 2

Is interest and/or dividend income derived from Australia by the Plan not assessable and not exempt income under section 128D of the ITAA 1936?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commences on:

1 July 2013

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:

The Plan is a defined contribution plan established by the Company.

Employees of the Company are eligible to participate in the Plan. Generally, participants are eligible to receive Company matching contributions.

Generally all full and part-time employees with 12 months of initial service who have 1,000 annual service hours with the Company are eligible to receive benefits.

Financial Reports provide that participants may borrow, from their fund accounts; principal and interest is paid rateably through payroll deductions.

A Plan Summary Plan Description (the Summary) was obtained via the Plan website.

The plan allows participants to contribute a portion of their pay to accounts; the plan also allows Employer to make matching contributions.

Participants’ contributions, any employer contributions, and other contributions (such as rollover contributions) are held in separate accounts within a member’s account for bookkeeping purposes.

The Summary provides information in relation to Payment to Participant after Termination; payment can be made as soon as administratively practicable after terminating employment with the Company.

If the balance is less than the threshold, a lump sum payment will be made to a participant as soon as possible, whether or not making a request for payment. If a request payment made, a participant may elect either (i) to have the lump sum paid directly, (ii) to roll over the lump sum to another qualified plan, or (iii) to roll over a portion of the lump sum payment to another qualified plan and to have the balance of the payment paid directly to a participant.

A participant must request payment if the balance in the Plan at the time of payment is greater than the threshold.

The Summary provides information in relation to Payment during Employment. Participants may request an in-service payment. Such payments may be for one of the following reasons:

The Summary provides information in relation to Loans. It confirms that a participant can obtain a loan from the Plan if actively employed by the Company.

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 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:

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:

118-520(2) However, a fund is not a superannuation fund for foreign residents if:

Is the Plan a ‘fund’? and is it an indefinite continuing fund?

In order to consider the application of Section 118-520 of the ITAA 1997, we must first determine if the Plan is a ‘fund’ and is it an indefinite continuing fund?

On consideration of the details of the fund there is no question that the Plan is a ‘fund’ that is indefinite and continuing.

Is the Plan a provident, benefit, superannuation or retirement fund for the purposes of 118-520 of the ITAA 1997?

The phrase ‘a provident, benefit, superannuation or retirement fund’ under paragraph 118-520(1)(a)(ii) is not defined in either the ITAA 1997 or the ITAA 1936. However, the phrase has been subject to judicial consideration.

In Scott, the High Court examined the terms ‘superannuation fund’ and ‘fund’. Justice Windeyer enunciated at ATD 351; AITR 312; ALJR 278 that:

In a later case, Mahoney v. Commissioner of Taxation (Cth) (1967) 41 ALJR 232; (1967); 14 ATD 519; 10 AITR 463 (Mahoney case), the High Court took a similar view as in Scott, Justice Kitto expressed the view at ALJR 232; (1967); ATD 520; AITR 464 that:

The court found that the expression ‘provident, benefit or superannuation fund’ takes its meaning from past usage and the meaning of the several expressions must be arrived at in light of their ordinary usage.

As such the term ‘benefit’ requires a purpose narrower than conferring benefits in a completely general sense where the benefit must be characterised by some future purpose e.g. a funeral benefit. On the same note, a provident fund must not refer to the provision of funds in a general sense, but must relate to a provision against contemplated contingencies.

Both of the abovementioned cases emphasise that the benefits must be provided for a specific purpose and require that there is a connection between the benefit received and the provision by the fund for retirement or death of a member or against ‘contemplated contingencies’, such as a sickness or accident.

In this case, it suggests that the Plan has not been established for the sole purpose of meeting one of the specified purposes.

The Summary provides that payment can be made as soon as administratively practicable after terminating employment with the Company; the Summary also provides information in relation to Payment during Employment. Participants may request an in-service payment. There are no listed conditions or restrictions in the Summary.

Furthermore, participants may borrow money from the Plan.

It is considered that due to the abovementioned benefits, the Plan will not meet the requirements to be considered a provident, benefit, superannuation or retirement fund.

The lending of money is not in line with the sole purpose of a fund of this nature and does not align with the supply of benefits on reaching a specified condition such as reaching retirement age or due to an unforeseen circumstance such as disablement.

The ability for employees to request an in-service payment from profit sharing account and access their full benefit on cessation of employment without any listed conditions or restrictions is outside of the sole purpose of a fund meeting the definition.

Accordingly, the Plan is not a superannuation fund for foreign residents and the interest and/or dividend income of the fund is not excluded from withholding tax and will not be non-assessable non-exempt income.


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