Edited version of private advice

Authorisation Number: 1052393961667

Date of advice: 8 May 2025

Ruling

Subject:Withholding tax - exemption

Question

Is the Fund excluded from liability to withholding tax on interest, dividend, and non-share dividend income derived from its Australian investments to the facts and circumstances of this Ruling in accordance with paragraph 128B(3)(jb) of ITAA 1936?

Answer

Yes.

This ruling applies for the followingperiods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

1.  The Fund was established by the Foreign Non-profit Organisation in Country X.

2.  The Trustee Board consists of members who are not residents of Australia.

3.  The plans that form part of the Fund are plans for employees of the Foreign Non-profit Organisation and its affiliated regional administrative division.

4.  The plans are all defined benefit plans which provides retirees with a predetermined monthly retirement benefit upon reaching a specific age.

5.  Under the plans:

a)            The retirement benefit paid to a participant is calculated using a formula which employs years of credit services, salary information and other factors.

b)            The retirement benefit is payable to the participants upon attainment of their normal retirement age for the reminder of their lifetime.

c)            Early retirement benefit with reduction is payable to the participants upon attainment of their early retirement age.

d)            Early withdrawal of benefit will result in tax penalty in accordance with the law of Country X.

e)            Disability and death benefits are available, provided the participant meets certain criteria.

6.  The Fund's assets are contributions made by the employers only.

7.  The Fund is responsible for managing the assets for the sole purpose of providing retirement benefits to the participants and beneficiaries of the plans.

8.  The Fund confirmed that:

a)            It is indefinitely continuing;

b)            it was established in a country other than Australia;

c)            it was established and is maintained only to provide benefits for individuals who are not Australian residents;

d)            it carries on its central management and control outside of Australia by entities none of whom are Australian residents;

e)            it cannot deduct any amount paid to it under the Income Tax Assessment Act 1997 (ITAA 1997) or ITAA 1936;

f)            no tax offsets would be allowable for an amount paid to it or set aside for it;

g)            its income is not non-assessable non-exempt income because of either:

             i.       Subdivision 880-C of the ITAA 1997, or

             ii.       Division 880 of the Income Tax (Transitional Provisions) Act 1997.

9.  The Country X Revenue Authority provided letters stating that the Fund is exempt from taxation in Country X.

Australian Investments

10.  The Fund has invested in Australian equity investments.

11.  The Fund derives dividend and interest income from the investments.

12.  All its investments in Australia are listed on the ASX and its total participation interest in each investment is below 10%.

13.  Further, the Fund confirmed that for each investment, the Fund:

a)            does not hold any right to appoint a person to a board, committee or similar, either directly or indirectly;

b)            has not entered into or received any side letters, arrangements or agreements;

c)            does not hold any veto rights on security holder votes; and

d)            does not hold any other influence potentially of a kind described in subsection 128B(3CD) of the ITAA 1936.

Relevant legislative provisions

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

Reasons for decision

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.

Broadly, paragraph 128B(3)(jb) of the ITAA 1936 provides an exclusion from withholding tax for interest, dividends and non-share dividends derived by a superannuation fund for foreign residents (subject to the satisfaction of certain conditions).

Relevantly, paragraph 128B(3)(jb) of the ITAA 1936 states that it applies to 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;

Further, from 1 July 2019, the extra requirements in subsection 128B(3CA) of the ITAA 1936 must also be met.

Consideration of the above requirements is outlined below.

The Fund is a non-resident

The Fund is not a resident of Australia.

Therefore, the Fund satisfies this requirement.

Superannuation fund for foreign residents

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 satisfy the requirements set out in section 118-520 of the ITAA 1997, which states:

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.

Accordingly, to be considered a superannuation fund for foreign residents, it must be established that the Fund:

•                     is an indefinitely continuing fund

•                     is a provident, benefit, superannuation or retirement fund

•                     was established in a foreign country

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

•                     has its central management and control carried on outside of Australia by entities none of whom are Australian residents

•                     does not receive or have amounts set aside for it that have been or can be deducted under the ITAA 1997, and

•                     does not receive or have amounts set aside for it that give rise to a tax offset.

These requirements are considered below.

An indefinitely continuing fund

The term 'fund' is not defined in either the ITAA 1997 or the 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 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.

3.           ...money resources.

In Scott v Commissioner of Taxation (No 2) (1966) 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) 138 FCR 1; who stated that 'for present purposes, the point is the need for 'money' or 'other property' to constitute a fund'.

The Macquarie Dictionary, [Online], viewed 28 March 2025, www.macquariedictionary.com.au defines 'indefinitely' and 'continuing' as follows:

Indefinite:

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

2.           not clearly defined or determined; not precise.

3.           Grammar not specifying precisely, as the indefinite pronoun some.

- 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

In the present case, the Fund is a 'fund' within the ordinary meaning of the term.

There is no indication that there is any contemplation of the Fund ending at a defined point in time and there is no expectation that the plans of the Fund will be discontinued.

Therefore, the Fund satisfy this requirement.

A provident, benefit, superannuation or retirement plan

The phrase 'provident, benefit, superannuation or retirement fund' under subparagraph 118-520(1)(a)(ii) of the ITAA 1997 is not defined in either the ITAA 1997 or the ITAA 1936.

ATO Interpretative Decision ATO ID 2009/67 Income Tax: Superannuation fund for foreign residents (ATO ID 2009/67) provides 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).

The above 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 Fund is responsible for managing the assets of the plans. The plans exists to benefit employees of the Foreign Non-Profit Organisation and its affiliated regional administrative division, who are resident of Country X.

Depending on the Retirement Plan, participants are eligible to receive retirement benefits upon reaching Normal Retirement Age or early retirement benefits in specified circumstances and upon reaching Early Retirement Age. Deferred and late retirement benefits are also available to eligible participants of the plans.

The circumstances in which a participant of the plans can ordinarily receive funds from the Fund upon retirement of employment are clearly consistent with those of a provident, benefit, superannuation or retirement fund.

Further, the alternative circumstances of access available to participants and their beneficiaries, which include disability and death benefits, are considered to align with the contemplated contingencies of a 'provident, benefit, superannuation or retirement fund' as outlined in the relevant judicial decisions and ATO ID 2009/67.

As both the object of the Fund and the actual operation of the Fund have the sole purpose of providing benefits as a result of retirement, disability or death via the plans, the Fund is a 'provident, benefit, superannuation or retirement fund'.

Therefore, the Fund satisfy this requirement.

Established in a foreign country

The Fund was established in Country X.

Therefore, the Fund satisfy this requirement.

Was established and maintained only to provide benefits for individuals who are not Australian residents

The Fund was established and is maintained to provide benefits to the participants (and beneficiaries) of the plans, being employees of the Foreign Non-Profit Organisation and its affiliated regional administrative division, all of whom are not Australian residents.

Therefore, the Fund satisfies this requirement.

Central management and control carried on outside Australia by entities none of whom is an Australian resident

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 at paragraph 20 and 21:

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.

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.

Further, Taxation Ruling TR 2018/5 Income tax: Central Management and Control test of residency states at paragraphs 10 and 11:

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's registered office is in Country X and none of the members of the Trustee Board are residents of Australia.

Accordingly, it is reasonable to conclude that the central management and control of the Fund occurs outside of Australia by entities that are not residents of Australia.

Therefore, the Fund satisfies this requirement.

Does not receive, or have amounts set aside for it, that have been or can be deducted under the ITAA 1936 or ITAA 1997

The Fund has advised that no amount paid to the Fund, or set aside for the Fund, has been or can be deducted under the ITAA 1936 or ITAA 1997.

Therefore, the Fund satisfies this requirement.

Conclusion

As all of the above requirements are satisfied, the Fund meets the requirement of being a superannuation fund for foreign residents as defined by section 118-520 of the ITAA 1997.

Subparagraph 128(3)(jb)(iii) of the ITAA 1936

Paragraph 128B(3)(jb) of the ITAA 1936 will only apply if the income from the Fund's Australian investments is exempt from income tax in the country in which the Fund resides.

The Country X Revenue Authority provided letters stating that the Fund is exempt from taxation in Country X.

Therefore, the Fund satisfies this requirement.

Subsection 128B(3CA) of the ITAA 1936

The Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 introduced extra requirements that must be met for paragraph 128B(3)(jb) of the ITAA 1936 to apply.

Generally, these extra requirements apply to income derived from 1 July 2019.

Accordingly:

•                     The Fund must satisfy the 'portfolio interest test' in relation to the test entity (subsection 128B(3CC) of the ITAA 1936)

•                     The Fund must satisfy the 'influence test' (subsection 128B(3CD) of the ITAA 1936) in relation to the test entity, and

•                     the income cannot otherwise be non-assessable non-exempt income of the Fund because of:

-                    Subdivision 880-C of the ITAA 1997, or

-                    Division 880 of the Income Tax (Transitional Provisions) Act 1997.

These requirements are considered below.

The Fund satisfies the 'portfolio interest test'

Subsection 128B(3CC) of the ITAA 1936 states:

A superannuation fund satisfies the portfolio interest test in this subsection in relation to the test entity at a time if, at that time, the total participation interest (within the meaning of the Income Tax Assessment Act 1997) the superannuation fund holds in the test entity:

(a)           is less than 10%; and

(b)           would be less than 10% if, in working out the direct participation interest (within the meaning of that Act) that any entity holds in a company:

(i)          an equity holder were treated as a shareholder; and

(ii)          the total amount contributed to the company in respect of non-share equity interests were included in the total paid-up share capital of the company.

The Fund holds less than 10% of the total participation interests in each entity and has never held more than a 10% participation interest. Further, the Fund would hold less than 10% of the total participation interests in each entity in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936.

The Fund therefore satisfies the 'portfolio interest test' in respect of its Australian investments listed at Appendix 1 to the relevant facts and circumstances of this Ruling.

The Fund satisfies the 'influence test'

Subsection 128B(3CD) of the ITAA 1936 states:

A superannuation fund has influence of a kind described in this subsection in relation to the test entity at a time if any of the following requirements are satisfied at that time:

(a)           the superannuation fund:

(i)          is directly or indirectly able to determine; or

(ii)          in acting in concert with others, is directly or indirectly able to determine;

the identity of at least one of the persons who, individually or together with others, make (or might reasonably be expected to make) the decisions that comprise the control and direction of the test entity's operations;

(b)           at least one of those persons is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of the superannuation fund (whether those directions, instructions or wishes are expressed directly or indirectly, or through the superannuation fund acting in concert with others).

As such, there are two distinct sub-tests within the influence test.

Sub-test 1 of the influence test, as contained in paragraph 128B(3CD)(a) of the ITAA 1936, assesses whether the Fund is able to determine the identity of at least one of the persons who, individually or together with others, makes or is reasonably expected to make, decisions comprising the control and direction of the test entity's operations. This includes situations where the Fund is able to act in concert with others to determine the identity of a relevant decision-maker in the test entity.

Sub-test 1 also extends to situations where the Fund, in its own right, holds the ability to approve or veto decisions which go to the control or direction of the test entity.

Law Companion Ruling LCR 2020/3 - The superannuation fund for foreign residents withholding tax exemption and sovereign immunity (LCR 2020/3) provides examples and guidance on the 'influence test' and states the following at paragraphs 11 to 13 with respect of sub-test 1:

11.Whether the relevant entity is able to determine the identity of (to settle or decide upon, to choose or appoint) one of those persons is a question of fact. The phrase 'able to' focuses on the relevant entity's capacity or power. The sub-test is therefore not limited to situations where the entity has already determined, or intends to determine, the identity of one of the relevant decision makers. A right to determine will be sufficient for the requisite level of influence to exist.

12.The relevant entity will not be 'able to' determine, as a matter of fact, where it has irrevocably and unconditionally waived its rights by way of a legally enforceable agreement.

13.The sub-test also extends to situations where the relevant entity has the indirect capacity to determine the identity of one of the relevant decision makers. This may occur, for example, where the relevant entity controls another entity and that other entity holds the right to determine the decision-maker's identity.

Sub test 2 of the influence test, as contained in paragraph 128B(3CD)(b) of the ITAA 1936, assess whether at least one of the relevant decision-making persons of the test entity is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the direction, instructions or wishes of the Fund.

LCR 2020/3 provides the following guidance at paragraph 29 in respect of sub-test 2:

29.The three matters ('accustomed', 'obliged' or 'might reasonably be expected to') are not a composite phrase denoting a single test; they comprise different considerations each of which is sufficient to establish influence:

•                     Whether a person is 'accustomed' to act in accordance with the directions, instructions or wishes of the relevant entity requires an analysis of past facts. This necessitates an examination of any discernible pattern of the person following the directions, instructions or wishes given by the relevant entity.

•                     Whether a person is 'obliged' to act in accordance with the directions, instructions or wishes of the relevant entity depends upon a formal or informal obligation existing at the relevant time.

•                     Whether a person 'might reasonably be expected' to act in accordance with the directions, instructions or wishes of the relevant entity requires a prediction as to future events and a consideration as to the objective likelihood of those future events occurring. This requires a consideration of all of the facts and circumstances impacting upon the relationship between the two parties.

Relevantly, in respect to the investments listed in Appendix 1 of the relevant facts and circumstances to this Ruling:

•                     neither the Fund, nor any related party of the Fund, has involvement in the day to day management of the business of any of the entities

•                     neither the Fund, nor any related party of the Fund, has the right to appoint a director to the Board of Directors, or any investor representative of advisory committee (or similar) of any of the entities

•                     neither the Fund, nor any related party of the Fund, has the ability to direct or influence the operation of the entities outside of the ordinary rights conferred by the equity interest held

•                     the Fund's interests do not provide it with an entitlement to either directly or indirectly determine the identity of any person who makes decisions that comprise the control and direction of the entities' operations

•                     no person involved in the control and direction of the entities' operations is accustomed or obliged to act in accordance with the direct or indirect directions, instructions or wishes of the Fund

•                     the Fund has not entered into or received any side letters, arrangements or agreement, and

•                     the Fund does not hold any veto rights on security holder votes.

Based on the above, the Commissioner accepts that the Fund does not have influence over the entities listed in Appendix 1 of the relevant facts and circumstances of this Ruling of a kind described in subsection 128B(3CD) of the ITAA 1936.

Therefore, the Fund satisfies this requirement.

Otherwise non-assessable non-exempt

The income received by the Fund will not be non-assessable non-exempt income because of Subdivision 880-C of the ITAA 1997 or Division 880 of the Income Tax (Transitional Provisions) Act 1997.

Therefore, the Fund satisfies this requirement.

Conclusion

Having regard to the requirements of paragraph 128B(3)(jb) of the ITAA 1936, the Fund is excluded from liability to withholding tax in relation to interest, dividend and non-share dividend income derived from its Australian investments listed at Appendix 1 to the relevant facts and circumstances of this Ruling.

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