Edited version of your written advice

Authorisation Number: 1051327318477

Date of advice: 22 January 2018

Ruling

Subject: Income derived in Australia by superannuation fund for foreign residents

Question 1

Is interest and dividend income derived by the Company, as Trustee of the Trust, established by the Declaration of Trust, excluded from liability to withholding tax under section 128B(3)(jb) of the Income Tax Assessment Act of 1936 (ITAA 1936)?

Answer

Yes

Question 2

Is interest and dividend income derived by the Trustee of the Trust from Australian sources ‘not assessable and not exempt’ income under section 128D of ITAA 1936?

Answer

Yes

This ruling applies for the following periods:

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

Year ended 30 June 2022

Year ended 30 June 2023

Year ended 30 June 2024

Year ended 30 June 2025

The scheme commences on:

1 July 2017

Relevant facts and circumstances

● The Trust was established by the Company in a foreign country. The Company acts as the Trustee of the Trust.

● The Trustee is a banking corporation. It has its principal place of business in the foreign corporation.

● The Company and the Trust are non-residents of Australia.

● The Trust is a group trust created and maintained to serve as a pooled investment for tax-qualified pension and profit-sharing plans, qualifying governmental plans and certain trust or other investment vehicles the assets of which include only assets of such plans.

● Paragraph two of the Deed states the Trust is ‘intended to provide for the collective investment and reinvestment of assets of pension and profit-sharing plans and retiree welfare plans…’.

● Paragraph three of the Deed states that it is intended the Trust be exempt from Taxation.

● The Deed defines Eligible Trust as;

a) A retirement, pension, profit sharing, stock bonus, or other employee benefit trust that is exempt from Federal income taxation…, or

b) An eligible governmental plan trust or custodial account…, or

c) … governmental plans, or

d) Any common, collective, or commingled trust fund the assets of which consist solely of assets of eligible investors in a group trust …

● The Deed states the Conditions of Participation permit the Trustee to only accept assets from Eligible Trusts that:

a) Will not jeopardise the Trust’s exemption from the registration requirements of the Federal and state securities law by virtue of the Eligible Trust’s investment in the Trust, and

b) Is governed by one or more instruments that authorize the investment of the Eligible Trust’s assets in collective or comingled trust funds generally, or in the Trust specifically, and that provide that the Trust will become oart of the Eligible Trust upon adoption by such Eligible Plan

● The Deed states that an Eligible Trust becomes a Participating Trust in a Fund on the Trustee’s acceptance of an application to become a Participating Trust as at the Valuation Date specified in the Participation Agreement.

● The Deed states that the Trust will be maintained at all times as a domestic trust in the foreign country, and the Trustee will at all times be a bank.

● The Trust holds dividend yielding investments which include shares in Australian Resident ASX listed public companies and interest yielding Australian Investments including interest bearing deposits and/or bonds.

● The Trust is a group trust arrangement and is exempt from income tax in the foreign country.

● The Company states that the Trust is:

a) An indefinitely continuing fund and a provident, benefit, superannuation or retirement fund;

b) An entity which was established in the foreign country;

c) Established, and is maintained, only to provide benefits for individuals who are not Australian residents; and

d) Centrally managed and controlled outside of Australia by entities none of whom is an Australian resident.

● Further, the Company states that an amount paid to the Trust, or set aside for the Trust, has not been or cannot be deducted under the Income Tax Assessment Act 1997 (ITAA 1997)7. Nor has a tax offset been allowed, or is 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

Question 1

Summary

The Trust is a ‘superannuation fund for foreign residents’ as defined in section 118-520 of the ITAA 1997. Accordingly, the interest and/or dividend income of the Trust is excluded from withholding tax pursuant to paragraph 128B(3)(jb) of the ITAA 1936.

Detailed reasoning

For the financial year ended 30 June 2008 and onwards, the term 'superannuation fund for foreign residents' is defined in section 118-520 of the ITAA 1997 as follows:

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 fund 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.

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; or

b) a tax offset has been allowed or is allowable for such an amount.

The Trust;

● Is an indefinitely continuing fund

● Was established to provide benefits for members and beneficiaries of participating superannuation funds

● Was established in a foreign country

● Was established and maintained to only provide benefits for residents of the foreign country

● Is centrally managed outside of Australia by entities who are not Australian residents. The Trust is also required to be maintained at all times as a domestic trust in the foreign country

The Trustee;

● Has not had amounts paid to it, or set aside for it, that have been or can be deducted under either the ITAA 1936 or ITAA 1997

● Has not a tax offset allowed or is allowable for such an amount within section 118-520(2) of the ITAA 1997.

The Deed indicates the Trust satisfies the definition of a ‘superannuation fund for foreign residents’ for the purposes of section 118-520 of the ITAA 1997. A statement by the Trustee of the fund also confirms the requirements of the definition are met.

For the financial year ended 30 June 2007 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 Trust:

● Is a foreign superannuation fund as defined in section 118-520 of the ITAA 1997. The statement by the Trustee also confirms that the requirements of this definition are met.

● Interest and dividends are being paid by entities that are Australian residents.

● Finally, the Trust’s interest and dividend income is exempt in the foreign country.

Accordingly, the interest and/or dividend income of the Trust is excluded from withholding tax pursuant to paragraph 128B(3)(jb) of the ITAA 1936.

Question 2

Summary

Australian derived interest and/or dividend income of the Trust is ‘not assessable and not exempt’ income under section 128D of ITAA 1936.

Detailed reasoning

Section 128D of the ITAA 1936 provides interest and dividend income that is excluded from withholding tax pursuant to paragraph 128B(3)(jb) of the ITAA 1936 is not assessable income and is not exempt income.

As discussed earlier, the Trust meets the definition of a ‘superannuation fund for foreign residents’ (s 118-520 of the ITAA 1997); the Trust has been established to provide pension and superannuation benefits for their members. The statement from the trustee of the Trust confirms the requirements of the definition have been met.

As concluded in Question 1, the Trust’s interest and dividend income is excluded from withholding tax pursuant to paragraph128B(3)(jb) of the ITAA 1936. Therefore, Australian derived interest and/or dividend income of the Trust is also ‘not assessable and not exempt’ income under section 128D of ITAA 1936.

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