Edited version of private advice

Authorisation Number: 1051573469765

Date of advice: 28 August 2019

Ruling

Subject: International issues - foreign entities - foreign superannuation funds

Question

Are you a 'foreign superannuation fund' for the purposes of the MIT regime under paragraph 275-20(4)(c) of the ITAA 1997?

Answer

Yes.

This ruling applies for the following periods:

1 July 20XX - 30 June 20Xx

1 July 20XX - 30 June 20XX

1 July 20XX - 30 June 20XX

1 July 20XX - 30 June 20XX

1 July 20XX - 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Taxpayer scheme

1. You have invested into Australian real property investments. The property investments have been made through Australian unit trusts (AUT) that are proposed to be withholding managed investment trusts (MIT).
2. You are a pension fund established under foreign law.
3. Your sole purpose is to provide pension benefits to relevant foreign individual residents.
4. You are indefinitely continuing.

Members

5. You are an institution of a foreign professional body.
6. Your members are generally registered professionals of the foreign profession body.
7. You consist of thousands of active members.

Management and control

8. You are headquartered in a foreign jurisdiction.
9. Your management and control functions consist of three key management bodies.
10. All key management bodies are composed of residents in the relevant foreign jurisdiction.

Relevant legislative provisions

Income Tax Assessment Act 1997 Paragraph 275-20(4)(c)

Income Tax Assessment Act 1997 Section 295-95

Income Tax Assessment Act 1997 Section 960-130

Income Tax Assessment Act 1997 Section 960-139

Income Tax Assessment Act 1997 Section 995-1

Superannuation Industry (Supervision) Act 1993 Section 10

Reasons for decision

Paragraph 275-20(4)(c) requires consideration of whether an entity with a participation interest in the proposed MIT is a 'foreign superannuation fund' with 'at least 50 members'.

Foreign superannuation fund

The term 'foreign superannuation fund' is defined in subsection 995-1(1):

foreign superannuation fund:

(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.

Therefore, in order for you to be considered a foreign superannuation fund, it needs to meet the criteria of:

(a) being a 'superannuation fund', and

(b) not being an 'Australian superannuation fund' for the ruling period.

Australian superannuation fund

The term 'Australian superannuation fund' is defined in subsection 995-1(1) as having the meaning given by section 295-95.

Subsection 295-95(2) states:

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.

All of the conditions in subsection 295-95(2) must be met for a superannuation fund to be an Australian superannuation fund. Based on the guidance in Taxation Ruling TR 2008/9 Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997 on central management and control of a superannuation fund, you do not satisfy paragraph 295-95(2)(b) as the central management and control of the fund is not in Australia.

TR 2008/9 states that

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:

- 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.

You hold three bodies responsible for decision making. They are all comprised of persons who are foreign residents in the jurisdiction in which you are registered and active.

Based on this, your central management and control is not Australia.

Superannuation fund

To qualify as a 'foreign superannuation fund', you must be a 'superannuation fund'.

'Superannuation fund' is defined in subsection 995-1(1) as having the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993.

Section 10 of the Superannuation Industry (Supervision) Act 1993 (SIS Act) defined 'superannuation fund' as:

(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.

Paragraph (b) is not relevant in this case as it relates to superannuation funds established under Australian law. You were established under foreign law.

Therefore, for you to meet this definition, you need to satisfy the three following criteria:

1) You must be a 'fund', and

2) You must be an indefinitely continuing fund, and

3) You must be a provident, benefit, superannuation or retirement fund.

Are you a fund?

The term 'fund' is not defined in the SIS Act for the purposes of section 10, the ITAA 1997 or the Income Tax Assessment Act 1936 (ITAA 1936). Therefore, it should be given its ordinary meaning subject to the context in which it appears and having regard to any relevant case law authorities.

The Australian Oxford Dictionary, 2004, Oxford University Press, Melbourne defines the term 'fund' as

1. a permanent stock of something ready to be drawn upon
2. a stock of money, especially one set apart for a purpose

In Scott v. FC of T (No 2) (1966) 14 ATD 333; (1966) 10 AITR 290; 40 ALJR 265 (Scott), Windeyer J expressed the view that 'fund' in the context of 'superannuation fund' ordinarily meant 'money (or investments) set aside and invested, the surplus income therefrom being capitalised'. Windeyer J's views in Scott were cited with approval by Hill J in Walstern Pty Ltd v. Commissioner of Taxation [2003] FCA 1428 (Walstern) who stated that 'for present purposes, the point is the need for "money" or "other property" to constitute a fund'.

Your contribution from members is invested to fund pensions. Therefore, you are a fund as a stock of money used for the purpose of paying benefits to members.

Are you an indefinitely continuing fund?

The phrase "indefinitely continuing" is not defined in the ITAA 1936 or the ITAA 1997. The Australian Oxford Dictionary defines 'indefinitely' as for an unlimited time and in an indefinite manner.

You are an 'indefinitely continuing' fund on the basis there is no clause in its constituent instrument or applicable foreign law which requires that it will be terminated or wound up after a specified period or on a specific date.

Are you a provident, benefit, superannuation or retirement fund?

The phrase 'a provident, benefit, superannuation or retirement fund' is not defined in the ITAA 1997 or the ITAA 1936.

The phrase 'superannuation fund' was considered in Walstern where it was concluded (citing Windeyer J in Scott) 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 Mahoney v. Commissioner of Taxation (Cth) (1967) 41 ALJR 232; (1967); 14 ATD 519; 10 AITR 463 (Mahoney), the High Court took a similar view as in Scott. Kitto J expressed the view that:

...all that need be recognised 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 employee, 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 a general sense, but characterised by some specific future purpose.

The court found that the expression 'provident, benefit or superannuation fund' takes its meaning from past usage and the meaning of the several expressions must be arrived at in light of their ordinary usage.

Your sole purpose is to provide old-age and disability pension benefits as well as survivors' benefits to professional individuals of a defined industry. Based on the case law above, you are a superannuation fund.

Therefore, for the purposes of paragraph 275-20(4)(c), you are a foreign superannuation fund.

Question 2

Do you have at least 50 members for the purpose of paragraph 275-20(4)(c) of the ITAA 1997?

Answer

Yes.

Detailed reasoning

To satisfy paragraph 275-20(4)(c), you must not only be a foreign superannuation fund, but also have at least 50 members:

a complying superannuation fund, a complying approved deposit fund or a foreign superannuation fund, being a fund that has at least 50 members

A 'member' for the purposes of this paragraph is defined in section 995-1 as having the meaning given by section 960-130.

Section 960-130 defines what a 'member' is of a company, partnership, trust and public trading trust. Of these four, you are most akin to a trust as it holds property for the benefit of its members.

Per item 3 in the table in section 960-139, a 'member' of a trust is defined as a 'beneficiary, unitholder or object of the trust'.

Therefore, to satisfy the requirement in paragraph 275-20(4)(c)of having at least 50 members, you must have at least 50 beneficiaries, unit holders or objects.

According to the constitution at the time of the ruling application (April 20XX) there are thousands of individuals entitled to your pension benefits. They are beneficiaries/unitholders/objects. Therefore, the requirement is satisfied.

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