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This edited version has been archived due to the length of time since original publication.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: 1051444721992

Date of advice: 29 October 2018

Ruling

Question 1

Is the Pension Plan exempt from liability to withholding tax on interest, dividend and non-share dividend income derived from its investments into Australia 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 the Pension Plan from its investments into Australia not assessable and not exempt income of the Pension Plan under section 128D of the ITAA 1936?

Answer

Yes.

This ruling applies for the following period:

30 June 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances

Background to the Pension Plan

Pension Plan Description

Membership

Contributions

Other facts

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

Question 1

Is the Pension Plan exempt from liability to withholding tax on interest, dividend and non-share dividend income derived from its investments into Australia 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 that withholding tax, under section 128B of the ITAA 1936, will not be imposed on:

(jb) income that:

The requirements for the exemption from withholding tax under paragraph 128B(3)(jb) of the ITAA 1936 will be discussed below.

The Pension Plan is a non-resident

The Pension Plan is not a resident of Australia for tax purposes. The Pension Plan was established outside Australia, and its management is completely based there. The Pension Plan therefore satisfies this requirement.

The Pension Plan 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:

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

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

Consequently, for the Pension Plan 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 Pension Plan 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:

indefinitely, adverb

The Pension Plan is created by statute. Its actuary and annual reports have projections for the sustainability of the Pension Plan for the foreseeable future.

The Pension Plan are established by statute and can only be wound up in the event of a change in the law enacted by the legislature.

There is sufficient evidence to accept that the Pension Plan will continue to operate in accordance with the relevant statutes for an indefinite period of time, satisfying this requirement.

The Pension Plan 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):

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

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:

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’:

The above guidance establishes 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 rules of the Pension Plan provide retirement, disability, death and survivor benefits to contributors to the Fund and their dependents. The Pension Plan is a scheme where the benefits paid to the relevant contributor are calculated based on a number of factors defined by statute, including the amount contributed, the number of years the person has contributed, the type of service, and the age of the person drawing benefits under the Pension Plan.

There are no benefits provided by the Pension Plan to contributors and beneficiaries beyond those as prescribed in the facts, and the Commissioner accepts that the alternate circumstances of access to the funds, being incapacity, death, the transfer of funds to another retirement fund, and a return of contributions in very limited circumstances, align to the contemplated contingencies of a provident, benefit, superannuation or retirement fund.

The Pension Plan was established in a foreign country

The Pension Plan were established in a foreign country and are not tax residents of Australia. Therefore the Pension Plan will satisfy this requirement.

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

The Pension Plan was established for employees of the relevant non-resident employer. 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 Pension Plan, 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 Pension Plan. Therefore, the Pension Plan will satisfy this requirement.

The Pension Plan’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:

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

Based on the facts, it is clear that all of the key functions of the Pension Plan are exercised outside of Australia, including the control and direction of the fund’s investments, strategies, fund administration, and operations. As such it is reasonable to conclude that the central management and control of the Pension Plan is exercised outside Australia by entities that are not Australian residents. The Pension Plan therefore satisfies this requirement.

No amount paid to the Pension Plan or set aside for the Pension Plan 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 Pension Plan or set aside for the Pension Plan 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 Pension Plan or set aside for the Pension Plan. Therefore, the Pension Plan 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 to the Pension Plan.

The Pension Plan will receive interest income from its Australian investments, along with dividend and non-share dividend income from companies who are residents of Australia for tax purposes. Therefore, the Pension Plan will satisfy this requirement.

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

The Pension Plan is exempt from income tax and therefore satisfies this requirement.

Conclusion

As all the requirements of paragraph 128B(3)(jb) of the ITAA 1936 are satisfied, the Pension Plan will be entitled to a withholding tax exemption under paragraph 128B(3)(jb) of the ITAA 1936 in relation to investments that it holds in Australia from which it derives interest, dividend and non-share dividend income.

Question 2

Is interest, dividend and non-share dividend income derived by the Pension Plan from its investments into Australia not assessable and not exempt income of the Pension Plan 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 Pension Plan from its direct 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 by the Pension Plan on its investments into Australia is not assessable and not exempt income of the Pension Plan under section 128D of the ITAA 1936.


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