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Edited version of private advice
Authorisation Number: 1051753151317
Date of advice: 18 September 2020
Ruling
Subject: MIT widely held requirements
Question
Is the non-resident entity an entity that is covered by the requirements under subsection 275-20(4)(g)?
Answer
No.
This ruling applies for the following period:
Income year ended 31 December 20XX
The scheme commences on:
1 January 20XX
Relevant facts and circumstances
The non-resident entity was established by its constituent documents.
The purpose of the non-resident entity is set out in its constituent documents.
The non-resident entity's businesses are set out in its constituent documents and include a range of financial and ancillary products, one of which is a pension plan.
The constituent documents provide for other businesses as required to achieve the purpose.
The non-resident entity's members can access any of the benefits provided by the businesses at any time.
The non-resident entity's members are employees of certain businesses in a specific industry.
The members of the non-resident entity can participate in one or several of the businesses of the non-resident entity and the number of members participating in each business is recorded.
The non-resident entity, in its financial reporting, is required by its constituent documents to separately report for the businesses.
The non-resident entity intends to invest in direct and indirect Australian real property investments.
Relevant legislative provisions
Section 275-20 of the Income Tax Assessment Act 1997
Reasons for decision
Subsection 275-20(3) provides that in determining whether a trust satisfies the widely held requirement under subsection 275-20(1) and paragraph 275-20(2)(b), the trust must identify the number of members of the trust that are, and are not, entities covered by subsection 275-20(4).
Subsection 275-20(4)(g) provides:
(g) an entity, the principal purpose of which is to fund pensions (including disability and similar benefits) for the citizens or other contributors of a foreign country, if:
(i) the entity is a fund established by an *exempt foreign government agency; or
(ii) the entity is established under a foreign law for an exempt foreign government agency; or
(iii) the entity is a *wholly-owned subsidiary of an entity mentioned in subparagraph (i) or (ii);
Entity
Section 960-100 states the following:
(1) Entity means any of the following:
(a) an individual;
(b) a body corporate;
(c) a body politic;
(d) a partnership;
(e) any other unincorporated association or body of persons;
(f) a trust;
(g) a *superannuation fund;
(h) an *approved deposit fund.
The non-resident entity is a body corporate established its constituent documents.
Principal Purpose
The term principal purpose, for the purposes of paragraph 275-20(4)(g), is not a defined term and will therefore have its ordinary meaning.
The Australian Oxford Dictionary (2nd Edition 2004) defines 'principal' as:
1. first in rank or importance; chief
2. main, leading
3. of money constituting the original sum invested or lent.
and 'purpose' as:
1. an object to be attained; a thing intended.
2. the intention to act.
3. resolution, determination
This is the starting point in understanding the purpose of the non-resident entity. A principal purpose test allows the non-resident entity to have a number of purposes but requires consideration of which identifiable purpose is the leading or main purpose.
The purpose of the non-resident entity propounded in the constituent documents is to support employees of a particular industry.
The purpose of the non-resident entity is broad and relates to welfare to employees of an industry that has importance, but is not specific to funding pensions. However, the businesses of the non-resident entity may assist in determining more specific purposes of the non-resident entity noting that the non-resident entity's day to day activities are to achieve the objectives of each of its business in order to fulfil the overarching purpose.
There are a number of different businesses (described in the relevant facts and circumstances above) conducted by the non-resident entity to achieve this purpose. Based on the descriptions of the business operations in the constituent document, financial documents and the ruling application, only one of the business's involves the funding of pensions. Specifically, it only allows access to the funds held as pension for the members after retirement or in certain contemplated contingencies.
The other businesses do not have the limitations on access to funds that are consistent with a business of the payment of pensions.
The businesses of the non-resident entity are independently open to members of the non-resident entity.
According to the non-resident entity's financials and details of the membership numbers there is no indication of any one business as standing above the other businesses of the non-resident entity so as to be the leading or main business.
Considering all of the available measures there is no indication that the pension plan business was the primary business or the leading business of the non-resident entity above all other businesses. Therefore, it cannot be concluded that the principal purpose of the non-resident entity is the funding of pensions at the present point in time.