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Ruling

Subject: Foreign superannuation fund

Question

Are the international pension plans established in Country A, Country B and Country C respectively foreign superannuation funds for Australian income tax purposes?

Answer

Yes.

This ruling applies for the following periods:

2012-13 income year

2013-14 income year

The scheme commences on:

1 July 2012

Relevant facts and circumstances

The entity is a company with its registered office in Country C and is the sponsor of three overseas retirement plans based in Country A, Country B and Country C.

Each of the overseas retirement plans, the Country A Plan, the Country B Plan and the Country C Plan were established outside Australia and the corporate trustees of each of the three overseas retirement plans are resident in Country A, Country B and Country C respectively.

There were no Australian assets at the time the fund was established. At all times central management and control is outside Australia and is in the country of residence of each of the 3 corporate trustees respectively. At no time have any of the corporate trustees been an Australian tax resident.

Each of the three overseas retirement plans is subject to the governing law of the country of residence of the corporate trustees, being Country A, Country B and Country C, respectively.

Each of the three overseas retirement plans is an indefinitely continuing fund established under irrevocable trusts. The sole purpose of the three overseas retirement plans as set out in each of the Trust Deeds is to provide superannuation benefits for members and their dependants. Benefits may be taken as a lump sum or as a pension or a combination of both at retirement. There is provision also for incapacity and early retirement benefits. Death benefits are also payable to dependants upon the death of the member.

The trustee's power to amend the trust deed provisions does not extend to the sole purpose provisions and no member's benefits may be reduced by any additions, deletions or amendments to the Trust Deed.

The overseas retirement plan members comprise mobile expatriate executives and companies with international operations. Overseas retirement plan members work or have retired to various countries around the world and occasionally Australia.

The amounts held in the overseas retirement plans consist of all contributions of money or property made by members and participating employers and include all income profits and accretions whether arising from investments or not and any cash or assets transferred to an overseas retirement plan under the terms of the Trust Deeds.

The Country A Plan has been established as a Trust under Country A's law. A company is the trustee of the Trust.

A clause of the Trust Deed to the Country A Plan states:

The sole purpose of the Plan shall be to provide retirement, annuity or such superannuation benefits for Members and their Dependants.

Payments can only be made from the Country A Plan at normal retirement age, for incapacity and early retirement, and death of a member (under specific clauses of the Trust Deed to the Country A Plan).

The Country B Plan has been established as a trust in Country B. A company is the trustee of the Trust.

A clause of the Trust Deed to the Country B Plan states:

The Sponsor hereby establishes the Plan with effect from the Commencement date to provide benefits on retirement, death, permanent ill health or otherwise of employees of any Employer who participates in the Plan by execution of a Deed of Attachment. …

Payments can only be made from the Country B Plan at normal retirement age, for early retirement, disability and death of a member (under a specific clause of the Trust Deed to the Country B Plan).

The Country C Plan has been established as a trust under Country C. A company is the trustee of the Trust.

Under a clause of the Background/Recitals to the Country C Plan the Trustee wishes to establish a retirement annuity fund under irrevocable trusts for the purpose of providing pensions on retirement and other benefits for and in respect of persons who are resident outside of Country C.

Payments can only be made from the County C Plan at normal retirement age, for incapacity and early retirement and death of a member (under specific clauses of the Trust Deed to the Country C Plan).

Relevant legislative provisions

Income Tax Assessment Act 1997 subsection 295-95(2)

Income Tax Assessment Act 1997 subsection 995-1(1)

Superannuation Industry (Supervision) Act 1993 section 19

Superannuation Industry (Supervision) Act 1993 section 62

Reasons for decision

Summary

The overseas retirement pension plans established in Country A, Country B and Country C., respectively are considered to be foreign superannuation funds for Australian income tax purposes as defined under subsection 995-1(1) of the Income Tax Assessment Act 1997.

Detailed reasoning

Foreign superannuation fund

A foreign superannuation fund is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) as follows:

· a superannuation fund is a foreign superannuation fund at a time if the fund is not an Australian superannuation fund at that time; and

· 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.

Under the definition of Australian superannuation fund in subsection 295-95(2) of the ITAA 1997 a superannuation fund that is established outside of Australia and has its central management and control outside of Australia would qualify as a foreign superannuation fund. The fact that some of its members may be Australian residents would not necessarily alter this.

Subsection 995-1(1) of the ITAA 1997 defines a superannuation fund as having the same meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SIS Act), which requires that the fund is a provident, benefit, superannuation or retirement fund.

Thus, a provident, benefit, superannuation or retirement fund that is established outside of Australia and has its central management and control outside of Australia would qualify as a foreign superannuation fund.

Provident, benefit, superannuation or retirement fund

The High Court examined both the terms superannuation fund and fund in Scott v Commissioner of Taxation of the Commonwealth (No. 2) (1966) 10 AITR 290; (1966) 40 ALJR 265; (1966) 14 ATD 333 (Scott). In that case, Justice Windeyer stated:

…I have come to the conclusion that there is no essential 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 this connexion "fund", I take it, ordinarily means money (or investments) set aside and invested, the surplus income there from being capitalised. I do not put this forward as a definition, but rather as a general description.

The issue of what constitutes a provident, benefit, superannuation or retirement fund was discussed by the Full Bench of the High Court in Mahony v Commissioner of Taxation (Cth) (1967) 41 ALJR 232; (1967) 14 ATD 519 (Mahony). In that case, Justice Kitto held that a fund had to exclusively be a 'provident, benefit or superannuation fund' and that 'connoted a purpose narrower than the purpose of conferring benefits in a completely general sense…". This narrower purpose meant that the benefits had to be 'characterised by some specific future purpose' such as the example given by Justice Kitto of a funeral benefit.

Furthermore, Justice Kitto's judgement indicated that a fund does not satisfy any of the three provisions, that is, 'provident, benefit or superannuation fund', if there exist provisions for the payment of benefits 'for any other reason whatsoever'. In other words, though a fund may contain provisions for retirement purposes, it could not be accepted as a superannuation fund if it contained provisions that benefits could be paid in circumstances other than those relating to retirement.

In section 62 of the SIS Act, a regulated superannuation fund must be 'maintained solely' for the 'core purposes' of providing benefits to a member when the events occur:

· on or after retirement from gainful employment; or

· attaining a prescribed age; and

· on the member's death. (this may require the benefits being passed on to a member's dependants or legal representative).

Notwithstanding the SIS Act applies only to 'regulated superannuation funds' (as defined in section 19 of the SIS Act), and foreign superannuation funds do not qualify as regulated superannuation funds as they are established and operate outside Australia, the Commissioner views the SIS Act (and the SIS Regulations) as providing guidance as to what 'benefit' or 'specific future purpose' a superannuation fund should provide.

In view of the legislation and the decisions made in Scott and Mahony, the Commissioner's view is that for a fund to be classified as a superannuation fund, it must exclusively provide a narrow range of benefits that are characterised by some specific future purpose. That is, the payment of superannuation benefits upon retirement, invalidity or death of the individual or as specified under the SIS Act.

Therefore, in order for a lump sum payment from the Country A Plan, the Country B Plan and the Country C Plan to be considered a payment from a foreign superannuation fund as defined in subsection 995-1(1) of the ITAA 1997, each fund must also satisfy the requirements set out in subsection 295-95(2) of the ITAA 1997. This means that each fund should not be an Australian superannuation fund as defined in that subsection but must be a provident, benefit, superannuation or retirement fund as discussed above.

The documentation provided in relation to the terms and conditions of the from the Country A Plan, the Country B Plan and the Country C Plan indicate benefits are only paid on retirement and the funds would meet the definition of superannuation fund. In addition, it is clear all three overseas retirement plans are established outside of Australia with its central management and control outside of Australia. Therefore, on the basis of the information provided, the Commissioner considers all three overseas retirement plans are foreign superannuation funds as defined in subsection 995-1(1) of the ITAA 1997.