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Edited version of private ruling
Authorisation Number: 1011824424612
Ruling
Subject: Exemption from Income tax/Withholding tax
Question 1:
Is the trustee of the overseas based superannuation fund excluded from liability to withholding tax on its interest and/or dividend income derived from Australia under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Answer: No.
Question 2:
Is interest and/or dividend income derived by the trustee of the overseas based superannuation fund non-assessable income of the fund under section 128D of the ITAA 1936?
Answer: No.
This ruling applies for the following period:
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2015
The scheme commenced on
1 July 2010
Relevant facts and circumstances
The application includes the following documentation:
· A copy of a statement from the trustee of the overseas based superannuation fund (the entity), confirming that the entity is an indefinitely continuing entity and 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, the central management and control of the entity is carried on outside Australia by entities none of whom is an Australian resident, an amount paid to the entity or set aside for the entity has not been or cannot be deducted under the ITAA 1997 has not been allowed or is not allowable for such an amount..
· A letter from the tax and a tax offset authorities of the country of residence of the fund certifying that the fund is exempt from taxation and is a resident of that country for taxation purposes.
· Copies of annual reports for the 2008 and 2009 years.
· A copy of the member handbook providing details of the rules of the fund and the benefits available to the members.
Relevant legislative provisions
Income Tax Assessment Act 1936 Paragraph 128B(3)(jb)
Income Tax Assessment Act 1936 Section 128D
Income Tax Assessment Act 1997 Section 118-520.
Reasons for decision
Paragraph 128B(3)(jb) of the ITAA 1936 excludes interest and dividend income from withholding tax where that income:
(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;
For the years ended 30 June 2008 and onwards, paragraph 128B(3)(jb) of the ITAA 1936 excludes interest and dividend income from withholding tax where that income:
i. is derived by a non-resident that is a superannuation fund for foreign residents; and
ii. consists of interest, 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 term 'superannuation fund for foreign residents' is defined in section 118-520 of the Income Tax Assessment Act 1997 (ITAA 1997) as follows:
118-520(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.
118-520(2) However, a fund is not a superannuation fund for foreign residents if:
(a) an amount 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.
Perusal of the members' handbook indicates the fund provides a revocable retiree health subsidy out of excess undistributed earnings and a taxable burial allowance to its retired members which is funded by the fund and is taxable to the beneficiary. The revocable retiree health subsidy has since been suspended but the decision will be reviewed annually.
These benefits cannot be classified as those that are normally provided by a superannuation or a pension fund to its members upon retirement.
Hence, the overseas based superannuation fund fails to satisfy the definition of the term 'superannuation fund for foreign residents' and the interest and/or divided income of the fund is subject to withholding tax and is assessable income of the fund.