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This edited version has been archived due to the length of time since original publication.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.

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Edited version of your written advice

Authorisation Number: 1051429040136

Date of advice: 20 March 2019

Ruling

Subject: Trust fund interest, dividend and non-share dividend income

Question 1

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

Answer

Yes.

Question 2

Is interest, dividend and non-share dividend income derived by non-assessable and non-exempt income of the Trust Fund under section 128D of the ITAA 1936?

Answer

Yes.

This ruling applies for the following periods:

Years ended 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

The Plans

The Trust Fund

Other

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

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

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

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:

The Trust Fund is a non-resident

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

The Trust Fund is a superannuation fund for foreign residents

Superannuation fund for foreign residents is a defined term in the ITAA 1936. Section 6 of the ITAA 1936 states:

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

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

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

Consequently, for the Trust 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:

The Trust Fund is an indefinitely continuing fund

The Trust Fund includes the comingled assets of the Plans which have been contributed by the Company. There is no indication that there is any contemplation of the Trust Fund ending at a defined point in time and there is no expectation that the Plans or the Trust Fund will be discontinued.

Therefore, it is accepted that the Trust Fund is an indefinitely continuing fund.

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

ATO Interpretative Decision ATO ID 2009/67 Income Tax: Superannuation fund for foreign residents provides guidance on the meaning of the phrase “provident, benefit, superannuation or retirement fund”:

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 Trust Fund is responsible for managing the funded assets of the Plans. The Plans are pension plans that apply to certain employees of the Company and its affiliates including salaried employees in Foreign Country.

Participants are eligible for a pension at the normal retirement age. In some circumstances, the early pension may be accessed before the participant reaches the normal retirement age, depending on their accumulated years of continuous service and their age.

The circumstances in which a member of each of the Plans can ordinarily receive funds from the Trust Fund upon retirement from employment are consistent with those of a provident, benefit, superannuation or retirement fund. Furthermore, the other potential avenues for accessing benefits include survivor pensions, disability pensions, single life annuity options and spouse benefits. These contemplated contingencies are considered to be aligned with the purposes of a provident, benefit, superannuation or retirement fund.

As both the objective of the Trust Fund and the actual operation of the Trust Fund have the sole purpose of providing retirement benefits or benefits in alignment with other contemplated contingencies via the Plans, the Trust Fund is considered to be a provident, benefit, superannuation or retirement fund.

Therefore, the Trust Fund will satisfy this requirement.

The Trust Fund was established in a foreign country

The Trust Fund was established in Foreign Country. Therefore, the Trust Fund will satisfy this requirement.

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

The Trust Fund was established in Foreign Country and operates to provide retirement benefits for its members in Foreign Country. 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 Trust 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 Trust Fund.

Therefore, the Trust Fund will satisfy this requirement.

The Trust 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 states in respect of the central management and control (CM&C) of a superannuation fund:

Furthermore, Taxation Ruling TR 2018/5 Income tax: Central Management and Control test of residency states:

The objective of the Trust Fund is to manage the funded assets of the pension plans that apply to certain employees of the Company and its affiliates including salaried employees in Foreign Country. The Trust Fund’s head office is located in Foreign Country and the relevant committees which control and direct the Trust Fund’s operation meet there.

Based on the above, it is reasonable to conclude that the central management and control of the Trust Fund occurs in Foreign Country by entities that are not Australian residents.

Therefore, the Fund will satisfy this requirement.

No amount paid to the Trust Fund or set aside for the Trust 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 Trust Fund or set aside for the Trust 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 Trust Fund or set aside for the Trust Fund.

Therefore, the Trust Fund will satisfy this requirement.

As all of the above elements have been satisfied, the Trust Fund will be a superannuation fund for foreign residents as defined by section 118-520 of the ITAA 1997.

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

Therefore, the Trust Fund will satisfy this requirement.

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

The Trust Fund is exempt from taxation in Foreign Country. Therefore, the Trust Fund will satisfy this requirement.

Conclusion

As all the requirements of paragraph 128B(3)(jb) of the ITAA 1936 are satisfied, the Trust 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 Trust Fund non-assessable and non-exempt income of the Trust Fund under section 128D of the ITAA 1936?

Detailed reasoning

Section 128D of the ITAA 1936 provides:

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 Trust Fund from its Australian investments will not be assessable income or exempt income under section 128D of the ITAA 1936 because the aforementioned income:

Conclusion

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


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