Edited version of your written advice

Authorisation Number: 1012909935393

Date of advice: 11 November 2015

Ruling

Subject: Superannuation fund for foreign residents

Question 1

Does the fund qualify as a 'superannuation fund for foreign residents' in a set of income years (the 'Relevant Period') as defined in section 118-520 of the Income Tax Assessment Act 1997 ('ITAA 1997')?

Answer to Question 1

Yes

Question 2

Is the trustee of the fund excluded from liability to interest and/or dividend withholding tax in the Relevant Period under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 ('ITAA 1936')?

Answer to Question 2

Yes

Question 3

Is the interest and/or dividend income derived by the trustee of the fund on behalf of the fund from Australian residents not assessable and not exempt income in the Relevant Period under section 128D of the ITAA 1936?

Answer to Question 3

Yes

This ruling applies for the following periods:

The Relevant Period

Relevant facts and circumstances

1. The fund was established prior to the Relevant Period in Country X only to provide pensions and/or other benefits in respect of old age, occupational disability and death to individuals who are current and former employees (the 'Members'), none of whom were Australian residents.

2. In the Relevant Period, the fund:

a. Is an indefinitely continuing, provident, benefit superannuation and retirement fund where:

i. The target retirement age is Y years;

ii. The pension scheme is an average salary scheme;

iii. The basis of the pension is an annual amount derived from the Member's salary up to a maximum amount;

iv. A percentage of the pension basis is accrued as a retirement pension each year;

v. The fund's income includes contributions payable by the employers of the Members and investment income; and

vi. The fund's expenses include pensions and/or other benefits paid to Members in respect of old age, occupational disability and death and expenses related to the fund's investments;

b. Is maintained only to provide benefits to the Members, being individuals who are not Australian residents;

c. Resides in Country X;

d. Has its central management and control carried on outside Australia by persons who are not Australian residents; and

e. Has its interest and/or dividend income exempt from taxation in Country X.

3. An amount paid to or set aside for the fund:

a. Has not been or cannot be deducted under the ITAA 1997; and

b. A tax offset has not been allowed or is not allowable for such an amount.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 6

Income Tax Assessment Act 1936 Section 128A

Income Tax Assessment Act 1936 Section 128B

Income Tax Assessment Act 1936 Section 128D

Income Tax Assessment Act 1997 Section 118-520

Income Tax Assessment Act 1997 Section 295-95

Income Tax Assessment Act 1997 Section 995-1

Reasons for decision

Question 1:

Does the fund qualify as a 'superannuation fund for foreign residents' in the Relevant Period as defined in section 118-520 of the ITAA 1997?

Summary

The fund meets the requirements of section 118-520 of the ITAA 1997 in the Relevant Period and is therefore a superannuation fund for foreign residents.

Detailed reasoning

Subsection 118-520(1) provides that an entity is a superannuation fund for foreign residents at a time if:

a. It was established in a foreign country only to provide benefits to individuals who are not Australian residents; and

b. At the time:

i. It is an indefinitely continuing, provident, benefit, superannuation or retirement fund;

ii. It is maintained only to provide benefits to individuals who are not Australian residents; and

iii. Its central management and control is carried on outside Australia by persons who are not Australian residents.

However, subsection 118-520(2) provides that 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 the Acts; or

b. A tax offset has been allowed or is allowable for such an amount.

On the basis of the information provided, the fund meets the requirements of subsections 118-520(1) and 118-520(2). The fund is therefore a superannuation fund for foreign residents in the Relevant Period under section 118-520.

Question 2:

Is the trustee of the fund excluded from liability to interest and/or dividend withholding tax in the Relevant Period under paragraph 128B(3)(jb) of the ITAA 1936?

Summary

The trustee of the fund is excluded from liability to interest and/or dividend withholding tax in the Relevant Period under paragraph 128B(3)(jb) of the ITAA 1936 as it is a non-resident which is a superannuation fund for foreign residents, and the fund is exempt from income tax in Country X, where it resides.

Detailed reasoning

Section 128B of the ITAA 1936 imposes withholding tax on the payment of interest and/or dividend income by Australian residents to non-residents. However, section 128B will not apply to interest and/or dividend income if subsection 128B(3) applies.

Paragraph 128B(3)(jb) excludes interest and/or dividend income that is derived by a non-resident which is a superannuation fund for foreign residents and is exempt from income tax in the country in which the non-resident resides.

Subsection 6(1) of the ITAA 1936 gives a superannuation fund for foreign residents the same meaning as in subsection 995-1(1) of the ITAA 1997, where it has the meaning given by section 118-520 of the ITAA 1997.

The trustee of a superannuation fund for foreign residents will be a non-resident for the purposes of section 128B when the superannuation fund is also a 'foreign superannuation fund' under subsection 128A(10) of the ITAA 1936. Subsection 995-1(1) provides that a superannuation fund is a foreign superannuation fund if it is not an Australian superannuation fund as defined in section 295-95 of the ITAA 1997.

Section 295-95 provides that a superannuation fund is an Australian superannuation fund at a time if all of the following conditions are met:

a. The fund was established in Australia, or any asset of the fund is situated in Australia at that time;

b. The central management and control of the fund is ordinarily in Australia at that time (or temporarily outside of Australia for less than 2 years); and

c. If the fund had active members, at least 50% of the market value of the fund's assets, or the amounts payable on cessation of membership, is attributable to the interests held by active members who are Australian residents.

In ATO ID 2009/77, the Commissioner considered the situation where a trustee of a superannuation fund in the form of a trust received interest and/or dividend income from Australian residents, and recognised that the phrase 'a non-resident that is a superannuation fund for foreign residents' in paragraph 128B(3)(jb) is inconsistent with subsection 128A(10) which treats the trustee of the fund as the non-resident if the fund is a foreign superannuation fund. ATO ID 2009/77 states that in these circumstances, the Commissioner considers that the reference to the superannuation fund for foreign residents in paragraph 128B(3)(jb) is a reference to the person acting in its capacity as the trustee of the superannuation fund for foreign residents.

The fund is not an Australian superannuation fund in the Relevant Period under section 295-95 as none of the Members are Australian residents and its central management and control is carried on outside of Australia. Therefore, in the Relevant Period, the fund is a foreign superannuation fund under subsection 995-1(1) and the trustee of the fund is a non-resident for the purposes of section 128B under subsection 128A(10).

As answered in Question 1, the fund is a superannuation fund for foreign residents in the Relevant Period for the purposes of section 118-520, and therefore for the purposes of subsection 995-1(1), subsection 6(1) and paragraph 128B(3)(jb).

As the fund is also exempt from income tax in Country X, where it resides, the Commissioner accepts that the trustee of the fund is excluded from liability to interest and/or dividend withholding tax in the Relevant Period under paragraph 128B(3)(jb).

Question 3:

Is the interest and/or dividend income derived by the trustee of the fund on behalf of the fund from Australian residents not assessable and not exempt income in the Relevant Period under section 128D of the ITAA 1936?

Summary

The interest and/or dividend income derived by the trustee of the fund on behalf of the fund from Australian residents in the Relevant Period is not assessable and not exempt income under section 128D of the ITAA 1936 as withholding tax would have been payable but for paragraph 128B(3)(jb) of the ITAA 1936.

Detailed reasoning

Section 128D provides that income upon which withholding tax is payable, or would be payable but for paragraph 128B(3)(jb), is not assessable and not exempt income.

Prior to the application of paragraph 128B(3)(jb), section 128B imposes withholding tax on the payment of interest and/or dividend income by Australian residents to non-residents under subsections 128B(1), 128B(2), 128B(4) and 128B(5).

As the trustee of the fund is a non-resident in the Relevant Period, withholding tax would be payable but for paragraph 128B(3)(jb) on the interest and/or dividend income derived by the trustee of the fund on behalf of the fund from Australian residents in the Relevant Period under subsections 128B(1), 128B(2), 128B(4) and 128B(5). This income is therefore not assessable and not exempt income in the Relevant Period under section 128D.