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Ruling

Subject: Foreign super fund withholding

Issue 1

Question 1

Is the trustee of the foreign super fund exempt from income tax on its dividend and/or interest income derived from Australia under paragraph 23(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer:

Yes.

Question 2

Is the trustee of the foreign super fund excluded from liability to withholding tax on its interest and/or dividend income derived from Australia under paragraph 128B(3)(a) of ITAA 1936?

Answer:

Yes.

This ruling applies for the following period:

1 July 2004 to 30 June 2005.

1 July 2005 to 30 June 2006.

The scheme commenced on:

1 July 2004.

Issue 2:

Question 1

Is the trustee of the foreign super fund excluded from liability to withholding tax on its interest and/or dividend income derived from Australia under paragraph 128B(3)(jb) of the ITAA 1936?

Answer:

Yes.

Question 2:

Is interest and/or dividend income derived by the trustee of the foreign super fund non-assessable income of the fund under section 128D of the ITAA 1936?

Answer:

Yes.

This ruling applies for the following period:

1 July 2006 to 30 June 2007.

1 July 2007 to 30 June 2008.

1 July 2008 to 30 June 2009.

1 July 2009 to 30 June 2010.

1 July 2010 to 30 June 2011.

1 July 2011 to 30 June 2012.

1 July 2012 to 30 June 2013.

1 July 2013 to 30 June 2014.

1 July 2014 to 30 June 2015.

The scheme commenced on

1 July 2006.

Relevant facts and circumstances:

The applicant has applied for a private ruling for a superannuation fund for foreign residents.

The superannuation fund concerned is the X Fund (the fund).

The application includes the following documentation:

· Copies of certificates of residence (dated April 2012 and May 2012) from the relevant foreign tax authority certifying that to the best of their knowledge, the fund was in 200X and is currently a foreign resident pension fund, and was in 200X and is currently exempt from income tax in the relevant country.

· A copy of the trust deed and rules of the fund, detailing the establishment, operating rules and benefits provided by the fund.

A statement from the trustee of the fund confirming that:

· the fund is an indefinitely continuing fund and a provident, benefit, superannuation or retirement fund,

· the fund was established in a foreign country,

· the fund was established, and is maintained, only to provide benefits for individuals who are not Australian residents,

· the central management and control of the fund is carried on outside Australia by entities none of whom is an Australian resident,

· an amount paid to the fund or set aside for the fund has not been or cannot be deducted under the ITAA 1997 and

· a tax offset has not been allowed or is not allowable for such an amount.

· Copies of the annual reports and financial statements of the fund for the years ending 31 December 2005, 2006, 2009 and 2010.

Relevant legislative provisions:

Income Tax Assessment Act 1936 Subsection 6(1).

Income Tax Assessment Act 1936 Paragraph 23(jb).

Income Tax Assessment Act 1936 Paragraph 128B(3)(a).

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

Issue 1

The term 'foreign superannuation fund' is defined in subsection 6(1) of the ITAA 1936 as follows:

foreign superannuation fund means a provident, benefit, superannuation or retirement fund:

(a) that was established in a country outside Australia;

(b) that was established, and is maintained and applied, for the sole purpose of providing superannuation benefits for persons other than persons who are, or would ordinarily be or become, residents of Australia or residents of a Territory (even if pensions are paid out of the fund to the latter persons); and

(c) the central management and control of which is carried on outside Australia by persons none of whom is a resident of Australia or a resident of a Territory;

not being a fund for which an amount has been set aside, or to which an amount has been paid, by a taxpayer that is an amount that has been allowed or is allowable as a deduction, or in respect of which a rebate of tax has been allowed or is allowable, under any provision of this Act.

Perusal of the rules indicates that the fund satisfies the definition of a foreign superannuation fund for the purposes of subsection 6(1) of the ITAA 1936.

Under paragraph 23(jb) of the ITAA 1936, interest or dividends or non share dividends received by a foreign superannuation fund are exempt from Australian income tax if at all times during the year of income, the entity was a foreign superannuation fund.

As it is considered that this pension fund was a foreign superannuation fund at all times during the relevant income years, interest and/or dividends or non share dividends received by the pension fund will be exempt from Australian income tax under paragraph 23(jb) of the ITAA 1936.

Paragraph 128B(3)(a) of the ITAA 1936 exempts interest, dividend income or non share dividends received by a foreign superannuation fund from Australian withholding tax if the income is exempt from income tax by virtue of paragraph 23(jb) of the ITAA 1936 and exempt from income tax in the country where the foreign superannuation fund resides.

The certification from the relevant foreign tax authority confirms the fund is exempt from income tax on its interest and/or dividend income in 200X and 200Y. Accordingly, the interest and/or dividend income of the fund is excluded from withholding tax pursuant to paragraph 128B(3)(a) of the ITAA 1936 for the relevant years.

Issue 2

From the financial year ended 30 June 2007, 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 foreign superannuation fund; 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.

As mentioned above, it is considered that the fund is a foreign superannuation fund as defined in subsection 6(1) of the ITAA 1936. The statement by the trustee of the fund also confirms that the requirements of this definition are met. In addition, the certification from the relevant foreign tax authority confirms the fund is exempt from income tax in its country of residence. Accordingly, the interest and/or dividend income of the fund is excluded from withholding tax pursuant to paragraph 128(3)(jb) of the ITAA 1936.

Section 128D of the ITAA 1936 provides that interest and dividend income that is excluded from withholding tax pursuant to paragraph 128B(3)(jb) is not assessable income.

For the financial 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, 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.

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;

(b) a tax offset has been allowed or is allowable for such an amount

Perusal of the rules indicates that the fund satisfies the definition of a superannuation fund for foreign residents for the purposes of section 118-520 of the ITAA 1997.

The statement by the trustee of the fund also confirms that the requirements of this definition are met. Accordingly, the interest and/or dividend income of the fund is excluded from withholding tax and is not assessable income.