Edited version of your written advice

Authorisation Number: 1051299379693

Date of advice: 23 April 2018

Ruling

Subject: Superannuation

Relevant facts and circumstances

The Fund

1. The Fund is a trust located in Country A.

2. Company A established the Fund for the purpose of providing retirement and related benefits for the present and future employees and any office-holders.

3. The office-holders of Company A are non-residents of Australia.

4. The Fund was registered as a domiciled retirement scheme in Country A.

5. The Fund is exempt from income tax on its interest and dividend income in Country A.

6. Company A, and the then trustee, entered into an agreement (the Agreement) to establish and maintain the Fund for the purpose of providing retirement and related benefits of relevant employees who are non-Australian residents.

7. Relevant clauses of the Agreement describe the rules governing the Fund including its objective, distributions and investments.

8. Relevant aspects of the retirement plan of the Fund describe:

a. eligibility requirements

b. costs for participation

c. service period

d. benefits

e. criteria in relation to employment, retirement, disability or death

f. when it can be amended or terminated, but there are no specific plans or provisions in the Fund to cease in the foreseeable future, and

g. rules regarding social security benefits, lump-sum payments and its closure on 31 December 2016.

9. The Trustee is a resident of Country A was appointed as the new trustee of the Fund.

10. The Trustee in its capacity as trustee of the Fund, has confirmed that the time of making this private ruling application that:

● The Fund is an indefinite 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 entity or set aside for the Fund has not been or cannot be deducted under the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997.

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

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

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

Reasons for decision

Question 1

Does the Fund qualify as a ‘superannuation fund for foreign residents’ as defined in section 118-520 of the Income Tax Assessment Act 1997?

Summary

1. The Fund qualifies as a ‘superannuation fund for foreign residents’ as defined in section 118-520.

Detailed reasoning

2. The term 'superannuation fund for foreign residents' is defined in section 118-520 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.

Is the Fund an ‘indefinite continuing fund’ that is a ‘provident, benefit, superannuation or retirement fund’ ‘established in a foreign country’ and maintained only to provide benefits for individuals who are not Australian residents?

3. The term 'fund' is not defined in either the ITAA 1997 or the Income Tax Assessment Act 1936 (ITAA 1936). Therefore, it should be given its ordinary meaning subject to the context in which it appears and having regard to any relevant case law authorities.

4. The Australian Oxford Dictionary, 2004, Oxford University Press, Melbourne defines the term 'fund' as 1. a permanent stock of something ready to be drawn upon... 2. a stock of money, especially one set apart for a purpose.

5. In Scott v. FC of T (No 2) (1966) 14 ATD 333; (1966) 10 AITR 290 (Scott), Windeyer J expressed the view that 'fund' in the context of 'superannuation fund' ordinarily meant 'money (or investments) set aside and invested, the surplus income therefrom being capitalised'. Windeyer J's views in Scott were cited with approval by Hill J in Walstern Pty Ltd v. Commissioner of Taxation (2003) 138 FCR 1; 2003 ATC 5076; (2003) 54 ATR 423 who stated that 'for present purposes, the point is the need for "money" or "other property" to constitute a fund'.

6. The phrase ‘a provident, benefit, superannuation or retirement fund’ under subparagraph 118-520(1)(a)(ii) is also not defined in either the ITAA 1997 or the ITAA 1936. However, the phrase has been subject to judicial consideration.

7. In Scott, the High Court examined the terms ‘superannuation fund’ and ‘fund’. Justice Windeyer stated at ATD 351; AITR 312; ALJR 278 that:

… 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.

8. In a later case, Mahoney v. Commissioner of Taxation (Cth) (1967) 41 ALJR 232; (1967); 14 ATD 519; 10 AITR 463 (Mahoney case), the High Court took a similar view as in Scott, Justice Kitto expressed the view at ALJR 232; (1967); ATD 520; AITR 464 that:

…all that need be recognised is that just as ‘provident’ and ‘superannuation’ both referred to the provision of a particular kind of benefit – in the one case a provision against contemplated contingencies, and in the other case a provision, to arise on an employee’s retirement or death or other cessation of employee, of a subvention for him or his estate or persons towards whom he may have stood in some kind of relation commonly giving rise to a legal or moral responsibility – so ‘benefit’ must have meant a benefit, not a general sense, but characterised by some specific future purpose.

9. The court found that the expression ‘provident, benefit or superannuation fund’ takes its meaning from past usage and the meaning of the several expressions must be arrived at in light of their ordinary usage.

10. As such the term ‘benefit’ requires a purpose narrower than conferring benefits in a completely general sense. The benefit must be characterised by some future purpose. On the same note, a provident fund must not refer to the provision of funds in a general sense, but must relate to a provision against contemplated contingencies.

11. Both of the abovementioned cases emphasise that the benefits must be provided for a specific purpose and require that there is a connection between the benefit received and the provision by the fund for retirement or death of a member or against ‘contemplated contingencies’, such as a sickness or accident.

12. In our case, the Fund was established overseas through an agreement between two foreign entities (the then trustee and Company A). The new Trustee is also a foreign resident.

13. The Fund and the rules for the retirement plan, provide for retirement benefits of foreign resident employees. There are also no specific plans in the Fund for it to cease in the foreseeable future.

14. Therefore, having regard to the information provided and the purpose of the Fund, the overseas-established Fund is considered an ‘indefinitely continuing fund’ that is a ‘provident, benefit, superannuation or retirement fund’ ‘established in a foreign country’ and maintained ‘only to provide benefits for individuals who are not Australian residents’, for the purposes of subparagraphs 118-520(1)(a) to (c).

Is the Fund’s central management and control carried on outside Australia by entities none of whom is an Australian resident?

15. The Fund is governed by relevant federal and state laws of Country A.. As stated in paragraph 1 and 11 of the relevant facts and circumstances the Fund is located in Country A and its central management and control is carried on outside Australia by entities that are not Australian residents.

16. Therefore, the Fund also satisfies the requirement under subparagraph 118-520(1)(d).

No amount paid to the fund or set aside for the fund has been or can be deducted under the ITAA 1936 or ITAA 1997 and no tax offset has been allowed or is allowable for such an amount?

17. As stated in paragraph 10 of the relevant facts and circumstances, the Fund has confirmed that no amounts have been paid to the Fund, nor set aside to be paid to the Fund, that can be deducted under ITAA 1997 or for which a tax offset has been allowed, or would be allowable, under the Act.

18. Consequently, based on the statement provided by the Fund, it has met the requirement under subsection 118-520(2).

Conclusion

19. In accordance with the documentation supplied, the Fund and the retirement plan rules show that it had been established as a genuine pension, superannuation and/or retirement fund solely providing superannuation benefits for non-residents of Australia. It has been set up and maintained outside of Australia by non-residents of Australia. Furthermore, no contributions to the Fund are capable of being claimed as a rebate or deduction under any section of the ITAA 1997.

20. Therefore, the Fund is a ‘superannuation fund for foreign residents’ as defined in section 118-520.

Question 2

Is the Trustee in its capacity as the trustee of the Fund, excluded from liability to interest and/or dividend withholding tax under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936?

Summary

1. The Trustee in its capacity as the trustee of the Fund, is excluded from liability to interest and/or dividend withholding tax under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Detailed reasoning

2. Paragraph 128B(3)(jb) of the ITAA 1936 which is cited below excludes certain interest and dividend income from withholding tax where that income:

iv. is derived by a non-resident that is a superannuation fund for foreign residents; and

v. consists of interest, or consists of dividends or non share dividends paid by a company that is a resident; and

vi. is exempt from income tax in the country in which the non-resident resides.

3. In our case, the Fund is exempt from taxation in Country A, and is a resident of that country for taxation purposes.

4. Furthermore, the Trustee in its capacity as the trustee of the Fund confirmed the Fund will derive interest and/or dividend income from Australia, and as discussed earlier in Question 1 of the Ruling the Fund is a ‘superannuation fund for foreign residents’ as defined in section 118-520.

5. Accordingly, the Trustee in his capacity as the trustee of the Fund, is excluded from liability to interest and/or dividend withholding tax under paragraph 128B(3)(jb) of the ITAA 1936.

Question 3

Is interest and/or dividend income derived from Australia by the Trustee in its capacity as the trustee of the Fund, not assessable and not exempt income under section 128D of the Income Tax Assessment Act 1936?

Summary

1. The interest and/or dividend income derived from Australia by the Trustee in its capacity as the trustee of the Fund, is not assessable and not exempt income under section 128D of the Income Tax Assessment Act 1936 (ITAA 1936).

Detailed reasoning

2. Section 128D of the ITAA 1936 provides:

‘Income other than income to which section 128B applies by virtue of subsection (2A), (2C) or (9C) of that section upon which withholding tax is payable, or upon which withholding tax would, but for paragraph 128B(3)(ga),(jb) or (m), section 128F, section 128FA or section 128GB, be payable, is not assessable income and is not exempt income of a person.’

3. Dividend and interest income derived by the Fund from Australia would be subject to withholding tax under subsections 128B(1) and 128B(2) of the ITAA 1936 respectively, but for the operation of the withholding tax exemption under paragraph 128B(3)(jb) of the ITAA 1936.

4. As discussed earlier in Question 2 of the Ruling, the Trustee in its capacity as the trustee of the Fund, is excluded from liability to interest and/or dividend withholding tax under paragraph 128B(3)(jb) of the ITAA 1936 as the Fund is a ‘superannuation fund for foreign residents’ as defined in section 118-520.

5. Accordingly, as paragraph 128B(3)(jb) of the ITAA 1936 is specifically referred to in section 128D of the ITAA 1936 any interest or dividend income derived from Australia by the Trustee in his capacity as the trustee of the Fund, will be considered not assessable not exempt income under section 128D of the ITAA 1936.