Edited version of your written advice

Authorisation Number: 1051390520867

Date of advice: 26 June 2018

Ruling

Subject: Contribution to foreign superannuation fund for temporary resident employees

Question One

Does the Pension Fund meet the definition of a ‘foreign superannuation fund’ for the purposes of applying subparagraph 136(1)(j)(ii) of the definition of a ‘fringe benefit’ in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question Two

If the answer to Question One is ‘Yes’, will contributions by the Taxpayer to a foreign superannuation fund for employees who are ‘temporary residents’ (within the meaning of that term in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)) be exempt from fringe benefits tax (FBT)?

Answer

Yes.

This ruling applies for the following period(s)

1 April 2017 to 31 March 2022.

The scheme commences on

1 April 2017.

Relevant facts and circumstances

The Taxpayer is a resident entity of Australia.

Certain employees (hereafter each referred to as a ‘Relevant Employee’) are assigned to work for the Taxpayer from the Taxpayer’s parent company in another country (Country A).

Each of the Relevant Employees are nationals of Country A.

The Relevant Employees enter Australia on a Temporary Visa. Prior to March 2018, Relevant Employees entered Australia on the (former) Temporary Work (Skilled) Visa (subclass 457). With effect from March 2018, the subclass 457 visa was replaced with the new Temporary Skills Shortage Visa (subclass 482). As such, Relevant Employees that will enter Australia in the future will arrive on the new subclass 482 visa.

None of the Relevant Employees have been granted permanent residency in Australia or have Australian citizenship. Further, each of the Relevant Employees do not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

Under the rules of the Relevant Employees’ Pension Fund in Country A, members can withdraw from the fund:

● from their 60^th or 65^th birthday (in ordinary circumstances, depending on an applicable portfolio), or

● from the age of 55, subject to reduced benefits.

Otherwise, it is not possible to withdraw before the age of 55 under the Pension Fund, unless it is for retirement as a result of ill health.

The Pension Fund is administered by Company Z for, and on behalf of, the Country A parent company. Company Z is a Pension Administration company registered and located in Country A.

Central management and control of the Pension Fund is in Country A, with operations of the fund undertaken from Company Z’s offices in Country A.

The Pension Fund is regulated by a regulation body in Country A.

The Pension Fund was established and registered in Country A.

The central management and control of the Taxpayer is in Country A.

Contributions have been, and will continue to be, made directly by the Taxpayer to the relevant portfolios in the Pension Fund for each of the Relevant Employees.

The Pension Fund does not have a termination date.

Assumptions

A benefit, being the making of a contribution to an employee’s superannuation fund, will be provided during the year of tax by an employer (the Taxpayer) to an employee (the Relevant Employees) in respect of the employee’s employment.

None of the excluded benefits listed in paragraphs (f) to (r) of the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA are relevant to the current circumstances, with the exception of paragraph (j).

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1997 Subsection 295-95(2)

Income Tax Assessment Act 1997 Section 307-5(1)

Income Tax Assessment Act 1997 Subsection 995-1(1)

Social Security Act 1991 Subsection 7(2)

Superannuation Industry (Supervision) Act 1993 Section 10

Superannuation Industry (Supervision) Act 1993 Section 62

Reasons for decision

Question One

Does the Pension Fund meet the definition of a ‘foreign superannuation fund’ for the purposes of applying subparagraph 136(1)(j)(ii) of the definition of a ‘fringe benefit’ in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The Pension Fund meets the definition of a ‘foreign superannuation fund’ for the purposes of applying subparagraph 136(1)(j)(ii) of the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA.

Detailed reasoning

Relevant law

For a fringe benefits tax (FBT) liability to arise in respect of the provision of an item, the provision of that item must constitute a ‘fringe benefit’.

A ‘fringe benefit’ is defined in subsection 136(1) of the FBTAA, which holds that the following conditions must be satisfied:

1. A benefit is provided at any time during the year of tax.

2. The benefit is provided to an employee or an associate of the employee.

3. The benefit is provided by:

a. their employer; or

b. an associate of the employer; or

c. a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or

d. a third party other than the employer or an associate of the employer, if the employer or an associate of the employer:

i. participates in or facilitates the provision or receipt of the benefit; or

ii. participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

4. The benefit is provided in respect of the employment of the employee.

5. The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA.

With respect to the fifth condition above, contributions to a ‘foreign superannuation fund’ (as defined in the Income Tax Assessment Act 1997 (ITAA 1997)) will be an excluded fringe benefit (and therefore not subject to FBT) if the requirements in the definition of a 'fringe benefit' under subparagraph 136(1)(j)(ii) of the FBTAA are satisfied (assuming the conditions listed at one to four above are also satisfied). As far as is relevant in the current circumstances, that subparagraph states:

fringe benefit, in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

…

in respect of the employment of the employee, but does not include:

…

(j) a benefit constituted by:

(i) …

(ii) the making of a contribution to a foreign superannuation fund (within the meaning of the Income Tax Assessment Act 1997) where:

(A) the contribution is for the purpose of making provision for superannuation benefits for the employee (whether or not the benefits are payable to a dependant of the employee if the employee dies before or after becoming entitled to receive the benefits); and

(B) the employee is a temporary resident (within the meaning of the Income Tax Assessment Act 1997) when the contribution is made.

Foreign superannuation fund

A ‘foreign superannuation fund’ is defined in subsection 995-1(1) of the ITAA 1997 as follows:

(a) a superannuation fund is a foreign superannuation fund at a time if the fund is not an Australian superannuation fund at that time; and

(b) a superannuation fund is a foreign superannuation fund for an income year if the fund is not an Australian superannuation fund for the income year.

Australian superannuation fund

Subsection 295-95(2) of the ITAA 1997 defines an ‘Australian superannuation fund’ as follows:

A superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if:

(a) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and

(b) at that time, the central management and control of the fund is ordinarily in Australia; and

(c) at that time either the fund had no member covered by subsection (3) (an active member) or at least 50% of:

(i) the total market value of the fund's assets attributable to superannuation interests held by active members; or

(ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members;

is attributable to superannuation interests held by active members who are Australian residents.

As per Taxation Ruling TR 2008/9 Income tax: meaning of ‘Australian superannuation fund’ in subsection 295-95(2) of the Income Tax Assessment Act 1997 (TR 2008/9), if a superannuation fund fails to satisfy any one of the three tests in subsection 295-95(2) of the ITAA 1997, it is not an Australian superannuation fund at that time, even if it satisfies the other two tests.

First test – fund established in Australia or any asset of the fund is situated in Australia

The requirements in the first test in paragraph 295-95(2)(a) of the ITAA 1997 will be satisfied if either the superannuation fund was established in Australia or at a particular time any asset of the fund is situated in Australia.

Second test – central management and control of the fund 'ordinarily' in Australia

The second test in paragraph 295-95(2)(b) of the ITAA 1997 requires that, at a particular time, the central management and control (CM&C) of the superannuation fund is ordinarily in Australia.

Paragraph 20 of TR 2008/9 states:

The CM&C of a superannuation fund involves a focus on the who, when and where of the strategic and high level decision making processes and activities of the fund. In the context of the operations of a superannuation fund, the strategic and high level decision making processes includes:

● formulating the investment strategy for the fund;

● reviewing and updating or varying the fund's investment strategy as well as monitoring and reviewing the performance of the fund's investments;

● if the fund has reserves - the formulation of a strategy for their prudential management; and

● determining how the assets of the fund are to be used to fund member benefits.

As per paragraph 22 of TR 2008/9, establishing who is exercising the CM&C of a superannuation fund is a question of fact to be determined with reference to the circumstances of each case. If a superannuation fund has an individual trustee or a group of individual trustees, it is the trustee or trustees of the fund that have the legal responsibility or duty to exercise the CM&C of the fund. If the trustee of the fund is a corporate trustee, it is the director or directors of the corporate trustee that have that legal responsibility or duty.

In terms of whether the CM&C of a fund is ordinarily in Australia at a particular time, paragraph 28 of TR 2008/9 provides that this is to be determined by the relevant facts and circumstances of each case. It involves determining whether, in the ordinary course of events, the CM&C of the fund is regularly, usually or customarily exercised in Australia. There must be some element of continuity or permanence if the CM&C of the fund is to be regarded as being 'ordinarily' in Australia.

Paragraph 27 of TR 2008/9 states that the location of the CM&C of the superannuation fund is ascertained by where the ‘high level and strategic decisions of the fund are made and high level duties and activities are performed (regardless of where the persons exercising the CM&C of the fund reside)’.

Third test – the 'active member' test

The third test – the ‘active member’ test – in paragraph 295-95(2)(c) of the ITAA 1997 requires that, at the relevant time:

● the fund has no 'active member'; or

● at least 50% of the total market value of the fund's assets attributable to superannuation interests held by active members is attributable to superannuation interests held by active members who are Australian residents; or

● at least 50% of the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members is attributable to superannuation interests held by active members who are Australian residents.

The definition of 'active member' is contained in subsection 295-95(3) of the ITAA 1997, which provides that a member is an active member of a superannuation fund at a particular time if the member is a contributor to the fund at that time or is an individual on whose behalf contributions have been made. However, a member of a fund is not an active member of the fund at the relevant time if:

● the member is a foreign resident

● the member is not a contributor at that time, and

● the only contributions made to the fund on the member's behalf since the member became a foreign resident were made in respect of a time when the member was an Australian resident.

Superannuation fund

The High Court examined both the terms superannuation fund and fund in Scott v. Commissioner of Taxation (No. 2) (1966) 40 ALJR 265; 14 ATD 333; 10 AITR 290 (Scott). In that case, Justice Windeyer stated:

…I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion "fund", I take it, ordinarily means money (or investments) set aside and invested, the surplus income there from being capitalised. I do not put this forward as a definition, but rather as a general description.

Subsection 995-1(1) of the ITAA 1997 defines a ‘superannuation fund’ as having the same meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), that is:

(a) a fund that:

(i) is an indefinitely continuing fund; and

(ii) is a provident, benefit, superannuation or retirement fund; or

(b) a public sector superannuation scheme.

Indefinitely continuing fund

The requirement that a fund be an ‘indefinitely continuing fund’ means that the fund must not be one which will terminate, or be wound up after a specified period.

The general view is that this does not mean that the fund must continue forever, but rather that the governing rules should not fix an express termination date. The hallmark of continuity lies in the purpose of the fund. It also means that the fund should not apply its funds in a way that would make it unlikely that the member would receive any benefit on retirement.

Provident, benefit, superannuation or retirement fund

The phrase ‘provident, benefit, superannuation or retirement fund’ is not defined in either the ITAA 1997 or the SIS Act.

However, its meaning has been considered in Scott and in Mahoney v. FCT (1967) 10 AITR 463; 41 ALJR 232; 14 ATD 519 (Mahoney).

In Scott, Windeyer J made the following observation in respect of the definition of a ‘superannuation fund’:

…there is no single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age.

The issue of what constitutes a ‘provident, benefit, superannuation or retirement fund’ was discussed by the Full Bench of the High Court in Mahony. In that case, Kitto J held that a fund had to exclusively be a 'provident, benefit or superannuation fund' and that 'connoted a purpose narrower than the purpose of conferring benefits in a completely general sense…'. This narrower purpose meant that the benefits had to be 'characterised by some specific future purpose' such as the example given by Kitto J of a funeral benefit.

Justice Kitto's judgement indicated that a fund does not satisfy any of the three provisions (that is, ‘provident, benefit or superannuation fund’) if there are provisions for the payment of benefits ‘for any other reason whatsoever’. In other words, though a fund may contain provisions for retirement purposes, it could not be accepted as a superannuation fund if it contained provisions that benefits could be paid in circumstances other than those relating to retirement.

Furthermore, Kitto J in Mahony referred to ‘superannuation’ as the making of provision for financial support for an employee, or for the employee’s estate or dependants, to arise on the employee’s retirement, death or other cessation of employment (for example, termination or resignation).

The requirement for an entity to be a ‘provident, benefit, superannuation or retirement fund’ is linked to the ‘sole purpose’ test in section 62 of the SIS Act, which sets out the approved purposes for which a fund must be maintained. In section 62 of the SIS Act, a ‘regulated superannuation fund’ must be ‘maintained solely’ for the ‘core purposes’ of providing benefits to a member when the events occur:

(a) on or after retirement from gainful employment; or

(b) attaining a prescribed age; and

(c) on the member's death (this may require the benefits being passed on to a member's dependants or legal representative).

Notwithstanding the SIS Act applies only to 'regulated superannuation funds' (as defined in section 19 of the SIS Act), and foreign superannuation funds do not qualify as regulated superannuation funds as they are established and operate outside Australia, the Commissioner views the SIS Act (and the SIS Regulations) as providing guidance as to what 'benefit' or 'specific future purpose' a superannuation fund should provide.

In view of the legislation and the decisions made in Scott and Mahony, for a fund to be classified as a ‘superannuation fund’, it must exclusively provide a narrow range of benefits that are characterised by some specific future purpose. That is, the payment of superannuation benefits upon retirement, invalidity or death of the individual or as specified under the SIS Act.

Application to the Taxpayer’s circumstances

As per the relevant law discussed above, the Pension Fund will be a ‘foreign superannuation fund’ pursuant to the definition of that term in subsection 995-1(1) of the ITAA 1997 if it is a superannuation fund that is not an Australian superannuation fund.

Is the Pension Fund a ‘superannuation fund’?

According to the Facts, the Pension Fund does not have a termination date. As such, the Pension Fund is an ‘indefinitely continuing fund’ pursuant to subparagraph 10(a)(i) of the SIS Act.

The Facts also provide that the Pension Fund is designed for the purpose of providing financial support for the retirement of employees (the ‘Relevant Employees’) who are nationals of Country A and who are assigned to work for the Taxpayer from the Taxpayer’s parent company in Country A.

Ordinarily, the Pension Fund can be accessed upon the Relevant Employee’s retirement (from the age of 60 or 65, depending on the applicable portfolio), however, an early release of a reduced Pension Fund balance can be made after the Relevant Employee turns 55 years old. Withdrawals from the Pension Fund prior to the age of 55 can only be made if a Relevant Employee is retiring on the grounds of ill-health (subject to meeting stringent conditions).

As the Pension Fund exclusively provides a narrow range of benefits that are characterised by a specific future purpose – being financial support for the retirement of the Relevant Employees – the Pension Fund is consistent with the meaning of a ‘provident, benefit, superannuation or retirement fund’ pursuant to subparagraph 10(a)(ii) of the SIS Act.

Therefore, the Pension Fund meets the definition of a ‘superannuation fund’ as per the definition of that term in section 10 of the SIS Act.

Is the Pension Fund an ‘Australian superannuation fund’?

For a superannuation fund to be considered an Australian superannuation fund, it must satisfy all three conditions in subsection 295-95(2) of the ITAA 1997.

The Facts provide that the Pension Fund was established outside of Australia, with its central management and control outside of Australia. As such, the conditions in paragraphs 295-95(2)(a) and 295-95(2)(b) of the ITAA 1997 are not satisfied.

On this basis, the Pension Fund is not an Australian superannuation fund, as all of the conditions in subsection 295-95(2) of the ITAA 1997 are not satisfied.

Conclusion

As the Pension Fund is a superannuation fund that is not an Australian superannuation fund, the Commissioner considers the Pension Fund to be a ‘foreign superannuation fund’ pursuant to the definition of that term in subsection 995-1(1) of the ITAA 1997.

Question Two

If the answer to Question One is ‘Yes’, will the contributions by the Taxpayer to a foreign superannuation fund for employees who are ‘temporary residents’ (within the meaning of that term in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)) be exempt from fringe benefits tax (FBT)?

Summary

The contributions by the Taxpayer to the Pension Fund for employees who are ‘temporary residents’ (the Relevant Employees) will be exempt from FBT.

Detailed reasoning

For a FBT liability to arise in respect of the provision of an item, the provision of that item must constitute a ‘fringe benefit’. The definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA is stipulated in the response to Question One above.

With respect to the conditions or elements of the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA, it is assumed for this ruling that a benefit, being the making of a contribution to a Relevant Employee’s superannuation fund (the Pension Fund), will be provided during the year of tax by the Taxpayer to the Relevant Employees in respect of the Relevant Employee’s employment.

However, the Taxpayer's contribution to the Pension Fund will not be subject to FBT where the benefit arising from the contribution is excluded from the definition of a ‘fringe benefit’.

This ruling assumes that none of the excluded benefits listed in paragraphs (f) to (r) of the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA are relevant to the current circumstances, with the exception of paragraph (j).

Contributions to a foreign superannuation fund will be excluded fringe benefits (and therefore not subject to FBT) if the requirements in the definition of a 'fringe benefit' under subparagraph 136(1)(j)(ii) of the FBTAA are satisfied.

The requirements in that subparagraph are reiterated below:

fringe benefit, in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

…

in respect of the employment of the employee, but does not include:

…

(j) a benefit constituted by:

(i) …

(ii) the making of a contribution to a foreign superannuation fund (within the meaning of the Income Tax Assessment Act 1997) where:

(A) the contribution is for the purpose of making provision for superannuation benefits for the employee (whether or not the benefits are payable to a dependant of the employee if the employee dies before or after becoming entitled to receive the benefits); and

(B) the employee is a temporary resident (within the meaning of the Income Tax Assessment Act 1997) when the contribution is made.

The requirements in the definition of a 'fringe benefit' under subparagraph 136(1)(j)(ii) of the FBTAA are broken down into its individual components below, incorporating a discussion of the relevant law for each component/condition, and its application to the current circumstances.

‘Making of a contribution’

From 1 July 2007, the FBT exclusion is for ‘contributions’ to a foreign superannuation fund. As per an amendment to paragraph (j) of the definition of a ‘fringe benefit in subsection 136(1) of the FBTAA (effected by Tax Laws Amendment (Simplified Superannuation) Act 2007 (9 of 2007)), such contributions are no longer limited to a ‘payment of money’, but also include in-specie contributions such as of shares and real property.

As per the Facts, the Taxpayer makes contributions to the Pension Fund which, as per the conclusion in the response to Question One above, is a ‘foreign superannuation fund’.

Therefore, this condition is satisfied.

‘Foreign superannuation fund’

As concluded in the response to Question One above, the Pension Fund meets the definition of a ‘foreign superannuation fund’ for the purposes of applying subparagraph 136(1)(j)(ii) of the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA.

‘Purpose of making provision for superannuation benefits’

The definition of a 'fringe benefit' under subparagraph 136(1)(j)(ii) of the FBTAA requires that a contribution to a foreign superannuation fund be for the ‘purpose of making provision for superannuation benefits’.

Subsection 307-5(1) of the ITAA 1997 states that a ‘superannuation benefit’ is a payment made to a person from a superannuation fund because the person is a member.

The principles surrounding this component of the definition of a 'fringe benefit' under subparagraph 136(1)(j)(ii) of the FBTAA are supported by the discussion of the meaning of the phrase ‘provident, benefit, superannuation or retirement fund’ in the response to Question One above.

The Facts provide that the Pension Fund is designed for the purpose of making provision for superannuation benefits, through providing financial support for the retirement of the Relevant Employees.

Therefore, this condition is satisfied.

‘Temporary resident’

A ‘temporary resident’ of Australia is defined in subsection 995-1(1) of the ITAA 1997 as an individual who:

● holds a Temporary Visa granted under the Migration Act 1958

● is not an Australian resident within the meaning of the Social Security Act 1991, and

● does not have a spouse who is an Australian resident within the meaning of the Social Security Act 1991.

Subsection 7(2) of the Social Security Act 1991 defines an ‘Australian resident’ as a person who:

(a) resides in Australia; and

(b) is one of the following:

(i) an Australian citizen;

(ii) the holder of a permanent visa;

(iii) a special category visa (SCV) holder who is a protected SCV holder.

As per the Facts in the current circumstances:

● The Relevant Employees reside in Australia on a Temporary Visa granted under the Migration Act 1958, being either a (former) Temporary Work (Skilled) Visa (subclass 457) or its (replacement) Temporary Skills Shortage Visa (subclass 482).

● The Relevant Employees are not ‘Australian residents’ within the meaning of that term in the Social Security Act 1991 as they are not Australian citizens and they do not have permanent residency in Australia.

● None of the Relevant Employees have a spouse that is an ‘Australian resident’ within the meaning of that term in the Social Security Act 1991.

On this basis, each Relevant Employee is considered to be a ‘temporary resident’ as per the definition of that term in subsection 995-1(1) of the ITAA 1997.

Therefore, this condition is satisfied.

Conclusion

Having regard to the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA, and in particular, the specific exclusion in subparagraph 136(1)(j)(ii) of that definition, it has been established that, in the current circumstances:

● a benefit – being the making of a contribution to a Relevant Employee’s superannuation fund (the Pension Fund) – is provided during the year of tax by the Taxpayer to the Relevant Employees in respect of the Relevant Employee’s employment

● the Pension Fund is a ‘foreign superannuation fund’ as per the definition of that term in subsection 295-95(2) of the ITAA 1997

● the Taxpayer makes contributions to the Pension Fund for the purpose of making provision for superannuation benefits for the Relevant Employees, and

● each of the Relevant Employees are a ‘temporary resident’ as per the definition of that term in subsection 995-1(1) of the ITAA 1997.

On the basis of the above, each of the requirements in subparagraph 136(1)(j)(ii) of the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA have been satisfied.

Therefore, the benefit – being contributions by the Taxpayer to the Pension Fund for the purpose of making provision for superannuation benefits for the Relevant Employees – is an excluded fringe benefit (and as such will be exempt from FBT) pursuant to subparagraph 136(1)(j)(ii) of the definition of a ‘fringe benefit’ in subsection 136(1) of the FBTAA.

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