Edited version of your written advice

Authorisation Number: 1051426826570

Date of advice: 10 September 2018

Ruling

Subject: Exemption from withholding tax for a superannuation fund for foreign residents

Question 1

Is the Fund exempt from liability to withholding tax on interest, dividend and non-share dividend income under paragraph 128B(3)(jb) of the ITAA 1936?

Answer

Yes, in relation to directly held investments as described in fact 18.

Question 2

Is interest, dividend and non-share dividend income derived by the Fund not assessable and not exempt income of the Fund under section 128D of the ITAA 1936?

Answer

Yes, in relation to directly held investments as described in fact 18.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Corporation

1. The Corporation was established under the relevant Corporation Act.

The Fund

2. The Fund is a trust organised under and governed by the laws of a foreign country that was formed by an agreement between the Corporation and the Trustees.

3. The Fund was established pursuant to a declaration of trust. The current version of the Trust Agreement governing the Fund was executed on a particular date.

4. The Fund is governed by the Trustees who comprise of the Fund’s President, three officers of the Fund, one member of the Fund’s Board of Directors, three elected members of the Committee (two of whom are current employees and one of whom is a retiree member).

5. The Fund is a resident of a foreign country for tax purposes. The Fund being a trust governed by a registered pension plan is exempt under the Act from the foreign country’s income tax.

6. The Fund administers the Plan for the benefit of members and is responsible for investing the assets to support the cost of the pension benefits that the members are entitled to under the Plan.

7. The Fund consists of a high number of members who are entitled to pension benefits.

8. The Fund states that the central management and control is in a foreign country and is carried on outside of Australia.

9. The Fund is not an entity for which an amount has been set aside, or to which an amount has been paid, where that amount has been allowed or is allowable as a deduction under the Income Tax Assessment Act and a tax offset has not been allowed or is not allowable for such an amount.

The Plan

10. The Corporation established the Plan to provide pension benefits to all active and retired employees of the Corporation.

11. The Trustees are the legal administrators of the Plan and are responsible for administering the Plan and investing the Fund to support the cost of members’ pension benefits.

12. Pursuant to the Plan rules, the Corporation has established a Council, consisting of elected employees and retired members to promote awareness and understanding of the Plan amongst members and to annually review financial, actuary and administrative aspects of the Plan.

13. The Plan is a federally registered pension plan subject to the foreign country’s Standards Act and regulations.

14. The Plan is also a registered pension plan with a number of institutions for the Act.

15. A letter from the foreign country states that the Plan is a registered pension plan pursuant to certain sections of the Act and confirms that the Plan is exempt from tax in the foreign country. The letter also confirms that a certain paragraph of the Act states that no tax is payable on the taxable income of a trust for a period when the trust is governed by a registered pension plan.

Investments

16. The Fund invests globally. Investments consist of short-term investments, bonds and debentures, real return securities, equities, foreign currency forward contracts, real estate and infrastructure.

17. The Fund intends to focus on future investments in infrastructure, real estate, agriculture and private equity asset classes in Australia as direct investments for which this Ruling application applies.

18. The Fund holds Australian investments and receives interest and dividend income from these investments. The first entry point into Australia is directly owned by the Fund and there are no interposed non-resident entities in the investment structure. These investments will be covered by this Ruling.

19. The Fund holds other Australian investments through non-resident interposed entities. These investments are not covered by this Ruling.

The Plan Description

General

20. The Plan is a compulsory contributory pension plan for all employees who satisfy certain eligibility conditions with contributions made by members and the Corporation as plan sponsor.

21. The Plan is comprised of a defined benefit component and prior to a certain date, also included a defined contribution component.

22. The defined benefit component applies to employees hired prior to a certain date (or otherwise eligible to participate).

23. The defined contribution component applied to new employees hired on or after a certain date (who were not eligible to join the defined benefit component).

24. The Corporation closed the defined contribution component of the Plan and established a new defined contribution plan with the entire balance of the defined contribution component of the Plan transferred to the new defined contribution plan.

25. Effective from a certain date, the Plan was amended and applies to all contributors and to all other eligible employees, including employees who were participating in the defined contribution plan on a particular date.

Eligibility

26. Every regular employee (a person in the service of the Corporation) is required to join the Plan and to contribute to the Fund unless exempted by a person of authority or is an employee who has not reached a certain age.

27. Every contract employee (a person retained by the Corporation on a contract basis) who has been employed for a continuous period of at least twenty four months may elect to join the Plan and is required to contribute to the Fund.

28. Employees under a certain age who were contributing to the Fund on the coming into force of the Rules shall continue to contribute and any employee under a certain age shall be eligible to join the Plan on the completion of a continuous period of at least twenty four months of service.

29. If a former employee is re-hired by the Corporation (non-recipient), the employee shall be considered to be a new employee for the purposes of eligibility for membership and benefits. Any benefit earned after that date will be calculated based on service and salary after that date. Any benefit earned prior to the date of the earlier cessation of employment shall be calculated based on service and salary prior to that date.

30. If a recipient is re-hired, they shall continue to receive their pension and shall not accrue further benefits during the period of re-employment.

Service Credits

31. Pensionable Service shall include those periods of service where employed by the Corporation (and any other period that is deemed by a person of authority or the Rules).

32. The Credited Service for any period equals the Pensionable Service in respect of such period during which the employee contributed to the Plan (plus any other periods recognised as Credited Service).

33. Periods during which a contributor is disabled shall be recognised as Pensionable Service and such periods during which contributions are made to the Fund shall be periods of Credited Service.

Contributions

34. Contributions to the Fund are required by contributors in accordance with each contributor’s election by payroll deduction or otherwise, at the rate determined by resolution of the Board and in accordance with the Act.

35. Contributions to the Fund shall be made by contributors in respect of that person’s entire salary received, up to the Act’s registered pension plan employee contribution limit.

36. The Corporation shall ensure that the Fund is funded in accordance with such tests and standards of solvency as are prescribed by the Standards Act so that the Fund is adequate to provide for payment of all pension benefits required under the terms of the Plan.

37. Contributions made to the Fund by the Corporation shall be subject to the requirements of the Act. All contributions required to be made by the Corporation and all contributions from the contributors shall be remitted to the Fund in accordance with the Act, Standards Act and the foreign country’s Code or any other legislation and regulations that may apply in the administration of the Plan.

Retirement Dates

38. The normal retirement date of a contributor will be:

(a) on the attainment of age 60 (Pre-Date Benefit Service)

(b) on the attainment of age 65 (Post-Date Benefit Service)

39. A contributor may retire (early retirement date) at any time on or after:

(a) attainment of age 50 (Pre-Date Benefit Service)

(b) attainment of age 55 (Post-Date Benefit Service only).

40. A contributor may postpone their retirement date beyond their normal retirement date, but no later than the end of the calendar year in which their 71^st birthday occurs.

41. A contributor has to cease to be employed with the Corporation for the benefit to be payable unless otherwise permitted by the Rules or applicable legislation.

Retirement Pension

42. With respect to Pre-Date Benefit Service, the amount of any pension to which a contributor becomes entitled, is generally an amount equal to:

(i) 2% multiplied by

(ii) the number of years of service of the contributor multiplied by

(iii) the average annual salary of the contributor.

43. With respect to Post-Date Benefit Service, the amount of any pension to which a contributor becomes entitled, is generally the total of (a) and (b) below, where:

(a) is an amount equal to:

(i) 2% multiplied by

(ii) the number of years of service of the contributor under Option 1, multiplied by

(iii) the Average Annual Salary of the contributor; and

(b) is an amount equal to:

(i) 1.5% multiplied by

(ii) the number of years of service of the contributor under Option 2, multiplied by

(iii) the Average Annual Salary of the contributor.

44. Early retirement pensions can be granted with the person of authority’s approval. The person of authority may direct that a contributor be paid an immediate pension based on the contributor’s age and Credited Service at the time of cessation of employment.

45. Where a contributor retires, ceases to be a contributor, dies or the Plan is terminated in whole or in part and excess contributions are calculated, the contributor is entitled to an additional pension being the Actuarial Equivalent of the excess contributions, equal to the sum of:

(1) the contributor’s contributions with respect to Pre-Date Benefit Service plus interest to the date of the determination that exceeds 50% of the Commuted Value of the contributor’s pension accrued with respect to Pre-Date Benefit Service; and

(2) the contributor’s contributions with respect to Post-Date Benefit Service plus interest to the date of the determination that exceeds 50% of the Commuted Value of the contributor’s pension accrued with respect to Post-Date Benefit Service.

46. A pension is payable in periodic equal instalments no less frequently than annually and shall continue during the lifetime of the recipient and thereafter until the end of the month during which the recipient dies. Any unpaid amounts shall be paid to the recipient’s survivor or child or designated beneficiary or the recipient’s estate.

Termination of Employment

47. A contributor who ceases to be an employee is entitled to elect either:

(a) a deferred pension benefit including the additional deferred pension provided by any excess contributions, or

(b) to receive the lump sum payment of the Commuted Value of the pension as determined in (a) above (a contributor who has continuous service of two years or more is not entitled to the lump sum payment of the commuted value of pension).

48. Where a contributor ceases to be employed by the Corporation after becoming entitled to an immediate pension, the contributor may transfer the Commuted Value of the immediate pension entitlement, including any excess contributions to another registered pension plan on a locked-in basis, to a registered retirement savings plan, life income fund, or to an insurer for the purchase of a deferred or immediate life annuity as prescribed under the Standards Act or any other vehicle for such purpose under applicable legislation.

Death Benefits

49. Upon the death of a contributor, who was not a recipient at the date of death, the survivor of such contributor is entitled to:

(1) with respect to Pre-Date Benefit Service, an immediate pension, payable from the first on the month following the death of the contributor until the date such contributor would have attained age 65. If the Commuted Value of the survivor’s pension is less than the Commuted Value of the contributor’s entitlement, the survivor’s pension shall be increased to equal the Commuted Value of such contributor’s pension; and

(2) with respect to Post-Date Benefit Service, the Commuted Value of the contributor’s entitlement calculated as if the contributor terminated employment immediately prior to their date of death, including any excess contributions.

50. Upon the death of a contributor, who was not a recipient and who had at least two years of credited service, every child of the contributor is entitled to an immediate pension with respect to the contributor’s Pre-Date Benefit Service, if any, payable from the first of the month following the death of the contributor for as long as the child remains an eligible child (natural, adopted or stepchild of a contributor who is under a certain age throughout the calendar year, less than a certain age and is in full time attendance at a school or university (in attendance without interruption since reaching a certain age) or a dependent of the contributor by reason of mental or physical infirmity at the date of the contributor’s death).

51. Upon the death of a contributor, who was a recipient, the survivor is entitled to an immediate pension payable from the first of the month following the death of the contributor.

52. Upon the death of a contributor, who was a recipient and who had at least two years of credited service, every child of the contributor is entitled to an immediate pension with respect to the contributor’s Pre-Date Benefit Service, if any, payable from the first of the month following the death of the contributor for as long as the child remains an eligible child (as described above).

Disability

53. A contributor who ceases to be an employee by reason of becoming disabled and who has two or more years of credited service is entitled to an immediate pension or can elect to be treated as a termination of employment. If the contributor is not totally and permanently disabled, the person of authority’s approval is required and where the immediate pension commences to be paid to the earliest of:

(i) attainment of age 60,

(ii) completion of at least 30 years of pensionable service, or

(iii) when age and years of pensionable service combined equals not less than 80

the immediate pension payable shall not be greater than the pension, less ¼ of 1% per month that the retirement age at date of disability precedes such earliest age in paragraphs above that the contributor would have reached had the contributor remained in employment until attaining that age.

54. A disabled contributor may elect to continue to make contributions during their period of disability. Any such period shall be included as Credited Service and their salary during this period shall be deemed to be as defined.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1936 paragraph 128A(3)

Income Tax Assessment Act 1936 paragraph 128B(3)(jb)

Income Tax Assessment Act 1936 section 128D

Income Tax Assessment Act 1997 section 118-520

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

Reasons for decision

Question 1

Is the Fund exempt from liability to withholding tax on interest, dividend and non-share dividend income under paragraph 128B(3)(jb) of the ITAA 1936?

Answer

Yes, in relation to directly held investments as described in fact 18.

Detailed reasoning

Section 128B of the ITAA 1936 imposes liability to withholding tax on income derived by a non-resident that consists of dividend income (subsection 128B(1) of the ITAA 1936), interest income (subsection 128B(2) of the ITAA 1936) as well as other income prescribed in that section.

Subsection 128B(3) of the ITAA 1936 notes that section 128B of the ITAA 1936 will not apply to prescribed categories of income. Relevantly, paragraph 128B(3)(jb) of the ITAA 1936 states:

(jb) income that:

(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 Fund is a non-resident

The Fund is not a resident of Australia for tax purposes. Therefore, the Fund satisfies this requirement.

The Fund is a superannuation fund for foreign residents

Superannuation fund for foreign residents is a defined term in the ITAA 1936. Subsection 6(1) of the ITAA 1936 states:

superannuation fund for foreign residents has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997.

Subsection 995-1(1) of the ITAA 1997 sets out the following:

superannuation fund for foreign residents has the meaning given by section 118-520.

Section 118-520 of the ITAA 1997 states the following:

(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.

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

(a) an amount is 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.

Consequently, for the Fund to be considered a superannuation fund for foreign residents for the purposes of paragraph 128B(3)(jb) of the ITAA 1936, it must be established that:

n The Fund is an indefinitely continuing fund

n The Fund is a provident, benefit, superannuation or retirement fund

n The Fund was established in a foreign country

n The Fund was established and maintained only to provide benefits for individuals who are not Australian residents

n The central management and control of the Fund is carried on outside of Australia by entities none of whom are Australian residents

n No amount paid to the Fund or set aside for the Fund has been or can be deducted under the ITAA 1997, and

n No tax offsets have been allowed or would be allowable for an amount paid to the Fund or set aside for the Fund.

The Fund is an indefinitely continuing fund

The legislation provides no guidance on the meaning of ‘indefinitely continuing’. It is not a technical legal expression, and the ordinary meanings of indefinitely and continuing involve little ambiguity or controversy.

The Macquarie Dictionary, [Online], viewed on 1 February 2018, www.macquariedictionary.com.au defines ‘indefinitely’ and ‘continuing’ as follows:

Indefinite:

adjective 1. not definite; without fixed or specified limit; unlimited: an indefinite

number

2. not clearly defined or determined; not precise.

- indefinitely, adverb

Continue:

verb (Continued, continuing)

1. to go forwards or onwards in any course or action; keep on.

2. to go on after suspension or interruption.

3. to last or endure.

4. to remain in a place; abide; stay.

5. to remain in a particular state or capacity

The Rules have a termination clause that sets out the Fund’s process in the event of termination or wind up. There is no indication in the termination clause that there is any contemplation of the Fund ending at a defined point in time. The Rules provide that the Corporation shall pay into the Fund all amounts that would otherwise have been required to be paid to meet the prescribed tests and standards of solvency referred to in the Standards Act. The Corporation shall pay into the Fund:

(a) an amount equal to the aggregate of:

(i) the normal actuarial cost, and

(ii) any prescribed special payments,

that have accrued to the date of termination; and

(b) all

(i) amounts deducted by the Fund from the Contributor’s Salary, and

(ii) other amounts due to the Plan from the Corporation

that have not been remitted to the Fund at the date of the termination.

Therefore, it is accepted the Fund will continue to operate in accordance with the Rules for an indefinite period of time.

The Fund is a provident, benefit, superannuation or retirement fund

In Scott v. FCT (No. 2) (1966) 40 ALJR 265; 14 ATD 333, Windeyer J stated (40 ALJR 265 at 278; 14 ATD 333 at 351):

There is no definition in the Act of a superannuation fund. The meaning of the term must therefore depend upon ordinary usage, the attributes of a thing thus denominated being those which things ordinarily so described have...the connotation of the phrase in the Act must be determined by one’s general knowledge of the extent of the denotation of the phrase in common parlance...I have come to the conclusion that 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.

In Mahony v Commissioner of Taxation (1967) 41 ALJR 232; (1967) 14 ATD 519, Kitto J stated:

There was no definition in the Act of ‘a provident, benefit or superannuation fund’, and the meaning of the several expressions must therefore be arrived at in light of ordinary usage and with only one piece of assistance to be gathered from the immediate context. Since a fund, if its income was to be exempt under the provision, was separately required to be one established for the benefit of employees, each of the three descriptive words ‘provident’, ‘benefit’ and ‘superannuation’ must be taken to have connoted a purpose narrower than the purpose of conferring benefits, in a completely general sense, upon employees. Precise definition may be difficult, and in any case is unnecessary for present purposes. All that need be recognized is that just as ‘provident’ and ‘superannuation’ both referred to the provision of a particular kind of ‘benefit’ - in the one case a provision against contemplated contingencies, and in the other case a provision, to arise on an employee's retirement or death or other cessation of employment, of a subvention for him or his estate or persons towards whom he may have stood in some kind of relation commonly giving rise to a legal or moral responsibility – so ‘benefit’ must have meant a benefit, not in a general sense, but characterized by some specific future purpose. A funeral benefit is a familiar example.

In Cameron Brae Pty Limited v FCT (2007) 161 FCR 468; [2007] FCAFC 135; 2007 ATC 4936, the Full Federal Court held that the relevant fund was a superannuation fund for the purposes of former section 82AAE of the ITAA 1936. Jessup J at [106] stated:

In answering the question whether the fund was a “superannuation fund” as the term is ordinarily understood, it is, in my view, critical that payments could not have been made out of the fund (other than by way of administration expenses, taxation, etc) save to members of the relevant discretionary class, and save in circumstances which fell within the ordinary understanding of superannuation. A proper characterisation of the fund should, in my view, depend upon the purposes for which the assets and moneys of the fund might have been used rather than upon the quality of the rights of individual members of the fund. If the fund could have been used only to achieve what might be described as a superannuation purpose, I would describe the fund as a “superannuation fund”. That a particular member of a discretionary class might not, ultimately, have received any payment, was not, in my view, disqualifying.

ATO Interpretative Decision ATO ID 2009/67 Income Tax: Superannuation fund for foreign residents (ATO ID 2009/67) refers to these authorities to provide guidance on the meaning of the phrase ‘provident, benefit, superannuation or retirement fund’:

None of the four descriptors 'provident', 'benefit', 'superannuation' or 'retirement fund' in subparagraph (a)(ii) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997 are defined. The terms have, however, been the subject of judicial consideration.

The courts have held that for a fund to be a 'provident, benefit, superannuation or retirement fund', the fund 's sole purpose must be to provide superannuation benefits, that is, benefits to a member upon the member reaching a prescribed age or upon their retirement, death or other cessation of employment (Scott v. FC of T (No 2) (1966) 14 ATD 333; (1966) 10 AITR 290, per Windeyer J; Mahony v. FC of T (1967) 14 ATD 519, per Kitto J; Walstern Pty Ltd v. Commissioner of Taxation (2003) 138 FCR 1; 2003 ATC 5076; (2003) 54 ATR 423, per Hill J and Cameron Brae Pty Ltd v. Federal Commissioner of Taxation (2007) 161 FCR 468; 2007 ATC 4936; (2007) 67 ATR 178, per Stone and Allsop JJ).

Having regard to the terms of the deed of the Plan, it is considered that the Plan is a 'provident, benefit, superannuation or retirement fund' as that phrase has been interpreted by the relevant authorities. The sole purpose of the Plan is the provision of benefits to, or in respect of, participating employees who:

n cease their employment upon or after reaching retirement age (age 60)

n cease their employment after the satisfaction of certain service requirements

n cease their employment because of death or total and permanent disability, or

n reach age 70, whether or not they have ceased employment.

Therefore, the Plan satisfies subparagraph (a)(ii) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997.

The above establish that for a fund to qualify as a provident, benefit, superannuation or retirement fund, it must have the sole purpose of providing retirement benefits or benefits in other allowable contemplated contingencies (such as death, disability or serious illness).

The Fund administers the Plan for the benefit of members and is responsible for investing the assets to support the cost of the pension benefits that the members are entitled to under the Plan. The Fund provides pension benefits to all active and retired employees of the Corporation in a foreign country.

The payment of retirement benefits is allowed upon members reaching the specified retirement ages and years of service. If a member ceases employment before retirement age they are entitled to a pension once reaching retirement age, they do not get to access the money early. Further, the Commissioner accepts that the alternate circumstances of access in this case, being disability, death and termination of employment, align to the contemplated contingencies of a provident, benefit, superannuation or retirement fund.

Therefore, the Fund will satisfy this requirement.

The Fund was established in a foreign country

The Fund was established and is a resident of a foreign country. Therefore, the Fund will satisfy this requirement.

The Fund was established and maintained only to provide benefits for individuals who are not Australian residents

The Fund was established in a foreign country for the benefit of members and is responsible for investing the assets to support the cost of the pension benefits that the members are entitled to under the Plan.

It is considered that the possibility of a very small number of members being returned residents or becoming Australian residents after ceasing eligible employment is incidental and should not be taken to conclude that the Fund, in this case, has not been established and is not maintained only to provide benefits for non-residents, based on the rules and operation of the Fund.

Therefore, the Fund will satisfy this requirement.

The Fund’s central management and control is carried on outside Australia by entities none of whom is an Australian resident

Paragraphs 20 and 21 of 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) states in respect of the central management and control (CM&C) of a superannuation fund:

20. 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:

n formulating the investment strategy for the fund;

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

n if the fund has reserves – the formulation of a strategy for their prudential management; and

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

21. The other principal areas of operation of a superannuation fund that form part of the day-to-day or operational side of the fund's activities will not constitute CM&C. These activities do not form part of the CM&C of the fund because they are not of a strategic or high level nature. Rather, these activities are of a more formalistic or administrative nature. Examples of such activities include the acceptance of contributions that are made on a regular basis, the actual investment of the fund's assets, the fulfilment of administrative duties and the preservation, payment and portability of benefits.

Furthermore, paragraphs 10 and 11 of Taxation Ruling TR 2018/5 Income tax: central management and control test of residency (TR 2018/5) states:

10. Central management and control refers to the control and direction of a company’s operations. It does not refer to a physical location in which the control and direction of a company is located and may ultimately be exercised in more than one location.

11. The key element in the control and direction of a company’s operations is the making of high-level decisions that set the company’s general policies and determine the direction of its operations and the type of transactions it will enter.

The Fund administers the Plan for the benefit of members. The Fund is responsible for investing the assets to support the cost of the pension benefits that the members are entitled to under the Plan.

The Fund is a resident in a foreign country for tax purposes and is exempt under the Act from the foreign country’s income tax. The Fund is a trust organised under and governed by the laws of the foreign country that was formed by an agreement between the Corporation and its Trustees.

The Fund is governed by the Trustees who comprise of the Corporation’s President, three officers of the Corporation (appointed by the Board of Directors), one member of the Board of Directors, three elected members of the Pension Committee (two of whom are current Corporation employees), and one retiree member.

Based on this, it is reasonable to conclude that the central management and control of the Fund occurs in the foreign country by entities that are not Australian residents.

Therefore, the Fund will satisfy this requirement.

No amount paid to the Fund or set aside for the Fund has been or can be deducted under the ITAA 1997 and no tax offset has been allowed or is allowable for such an amount

An amount paid to the Fund or set aside for the Fund has not been and cannot be deducted under the ITAA 1997. A tax offset has not been allowed nor would be allowable for any amount paid to the Fund or set aside for the Fund.

Therefore, the Fund will satisfy this requirement.

Consists of interest or dividend and/or non-share dividends paid by a company that is a resident

Paragraph 128B(3)(jb) of the ITAA 1936 will only apply to interest, or to dividends and non-share dividends paid by Australian resident companies.

The Fund will receive interest income from Australian investments, along with dividend and non-share dividend income from companies who are residents of Australia for tax purposes.

Therefore, the Fund will satisfy this requirement.

Is exempt from income tax in the country in which the non-resident resides

The Plan is a registered pension plan pursuant to a particular section of the Act and is exempt from tax in a foreign country. A certain paragraph of the Act states that no tax is payable on the taxable income of a trust for a period when the trust is governed by a registered pension plan.

Therefore, the Fund will satisfy this requirement.

Conclusion

As all the requirements of paragraph 128B(3)(jb) of the ITAA 1936 are satisfied, the Fund will be entitled to an exemption under paragraph 128B(3)(jb) of the ITAA 1936.

Question 2

Is interest, dividend and non-share dividend income derived by the Fund not assessable and not exempt income of the Fund under section 128D of the ITAA 1936?

Answer

Yes, in relation to directly held investments as described in fact 18.

Detailed reasoning

Section 128D of the ITAA 1936 provides:

Income other than income to which section 128B applies by virtue of subsection (2A), (2C) or (9C) of that section upon which withholding tax is payable, or upon which withholding tax would, but for paragraph 128B(3)(ga),(jb) or (m), section 128F, section 128FA or section 128GB, be payable, is not assessable income and is not exempt income of a person.

Section 128D of the ITAA 1936 provides that, inter alia, where withholding tax would be payable but for the operation of paragraph 128B(3)(jb) of the ITAA 1936, the income is not assessable income and is not exempt income.

The interest, dividend and non-share dividend income derived by the Fund from its Australian investments will not be assessable income or exempt income under section 128D of the ITAA 1936 because the aforementioned income:

n would have been subject to withholding tax, and

n is not exempt from withholding tax under any provision other than paragraph 128B(3)(jb) of the ITAA 1936.

Conclusion

The interest, dividend and non-share dividend income derived in Australia by the Fund is not assessable and not exempt income of the Fund under section 128D of the ITAA 1936.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).