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Edited version of your private ruling
Authorisation Number: 1012646328396
Ruling
Subject: Foreign superannuation fund
Questions
Will the Plan established in overseas be a 'foreign superannuation fund' for the purposes of the Income Tax Assessment Act 1997?
Advice/Answers
Yes.
This ruling applies for the following period
Year ending 30 June 2013
The scheme commenced on
1 July 2014
Relevant facts and circumstances
The Company, a company with registered offices overseas, is the sponsor of international retirement plans based overseas.
In the 2013-14 income year the Company established the Plan.
The Plan is established outside Australia and the corporate trustees of the Plan are overseas residents.
There were no Australian assets at the time the Plan was established. At all times central management and control is overseas. At no time have any of the corporate trustees been an Australian tax resident.
The Plan is subject to the governing law of the country of residence of the corporate trustees, being overseas.
The Company Plans are indefinitely continuing funds established under irrevocable trusts. The sole purpose of the Company Plans 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 Plan members comprise mobile expatriate executives and companies with international operations. The Plan members work in, or have retired to, various countries around the world.
The amounts held in the Plan 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 the Plan under the terms of the Trust Deeds.
The Trust Deed and Rules of the Plan states that the trustee has agreed to administer a superannuation and pension fund to provide individual personal benefits, pensions or retiring allowances for employees of employers and other persons who are eligible to join the fund, investing in off-shore international assets.
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 10.
Superannuation Industry (Supervision) Act 1993 Section 19.
Superannuation Industry (Supervision) Act 1993 Section 62.
Further issues for you to consider
Not applicable.
Anti-avoidance rules
Not applicable.
Reasons for decision
Summary
On the basis of the information provided, the Commissioner considers the Plan to be a foreign superannuation fund for Australian income tax purposes.
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) 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.
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)1 (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)2 (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 SIS Act (and the SIS Regulations) as provides 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, 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 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). 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 Plan indicate benefits are only paid on retirement, death and invalidity and meet the definition of providing 'provident, benefit or superannuation fund' benefits.
The Plan is established outside of Australia with its central management and control outside of Australia.
Therefore, on the basis of the information provided, the Commissioner considers the Plan as a foreign superannuation fund as defined in subsection 995-1(1) of the ITAA 1997.
1 (1966) 10 AITR 290; (1966) 40 ALJR 265; (1966) 14 ATD 333.
2 (1967) 41 ALJR 232; (1967) 14 ATD 519.