Edited version of private advice

Authorisation Number: 1051864666912

Date of advice: 9 July 2021

Ruling

Subject: Foreign super fund - exemption from income tax/withholding tax

Question 1

Is the Fund excluded from liability to withholding tax on its dividend income derived in respect of assets acquired on or before 27 March 2018 under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes

Question 2

Is the Fund excluded from liability to withholding tax on its dividend income derived in respect of assets acquired after 27 March 2018 under paragraph 128B(3)(jb) of the ITAA 1936?

Answer

Yes

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Fund

The Fund is a pension plan established in a foreign country and administered by the laws in that country.

The Fund provides retirement, disability and death benefits to eligible employees and their beneficiaries.

The Fund's central management and control is carried out by a Pension Committee subject to final approval from the Board of Directors.

The Fund currently invests in several Australian entities.

The Fund's application included the following documentation:

•        Letters from the relevant overseas taxation authority certifying that the fund is exempt from income tax in its country of residence;

•        A copy of the Fund's Rules which provide for the establishment of the Fund, the benefits provided and rules governing the Fund;

•        A Statement from 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 of 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 ITAA 1997,

-       A tax offset has not been allowed or is not allowable for an amount,

-       The income of the Fund is non-assessable non-exempt income of the Fund because of:

o   Subdivision 880-C of the ITAA 1997; or,

o   Division 880 of the Income Tax (Transitional Provisions) Act 1997

The Fund is split into two options; a Defined Benefit option and a Defined Contributions option.

Defined Benefit Option

The Defined Benefit option of the Fund is a contributory defined benefit pension plan which includes both Union and non-union ('Management') Members, but closed membership to all new Management employees on 1 July 20XX.

All members make yearly contributions based upon their type of service and yearly earnings.

Benefits under the Defined Benefit Option include lifetime pension, supplemental pension, Disability, termination payments, and death benefits.

Benefits are calculated with formulas based on factors such as type and length of service, age of member at retirement, disability or death.

Contributions

Member contributions are calculated depending on the employee's country of residency, date and type of employment and yearly earnings.

Where a Management Employee who is not a Member participating in the Defined Contribution Provision becomes totally disabled with certification by a qualified medical doctor they will no longer be required to contribute to the Fund for the period they are receiving the Company's long-term disability benefits. The Member will accrue Pensionable Service while totally disabled and will continue to accrue pension benefits based on their base earnings at the date of the disability for as long as they are receiving the disability benefits, to be indexed annually. Disabled Member's will not accrue pension benefits after the earlier of the date they turn 65 or the date of termination of the Fund.

Benefits

The Defined Benefit Option provides the following benefits:

•        Lifetime Retirement Pension

-       The pension is calculated at the Member's Date of Cessation of Membership, as a percentage of their Highest Plan Earnings multiplied by their type and period of service.

-       Pension is paid in monthly instalments, starting on the 15th of the month following retirement and continuing on the last day of each month throughout the Pensioner's lifetime including the month of their death. Following death, monthly instalments will be paid to the Pensioner's spouse per the Rule's death benefits.

•        Supplemental Pension

-       A Member who has a particular Union Service who retired prior to 1 January 20XX receives a Supplemental Pension in addition to the Lifetime Pension, calculated as at the Member's Date of Cessation. This Supplemental Pension is payable from the latter of the Member's Retirement Date and the last day of the month when the sum of the Member/Former Member's age plus pensionable service is at least 85 years and their age is at least 55, to the end of the month in which the earlier of either the Member's date of death and the date the Member turns 65.

•        Disability Pension

-       A Member who retires at a Disability Retirement Date is entitled to a pension.

-       The Disability Retirement Date of a Member shall not be earlier than the last day of the month for which the Member received or will receive salary replacement benefits under the worker's compensation legislation which, after income tax, are greater than or equal to 70% of the Members Highest Plan Earnings after income tax.

•        Death Benefits providing elected beneficiaries with a lump sum payment or pension

-       Members are eligible to Death Benefits calculated depending on their status at the date of their death.

•        Termination repayments

Defined Contribution Option

Effective 1 January 20XX a Defined Contribution ('DC') provision was established for Management Employees of the Company. The DC pension has its own DC Pension Committee which reports to and is subject to the control of the Company or the Board.

The Company expects the DC provision to continue indefinitely, though reserves the right to amend, terminate, merge or consolidate the provision with any other Registered Pension Plan adopted by the Board in the future provided no benefit accrued up to the date of that act based on service rendered and earnings paid was consequently reduced.

Membership

All Management employees hired on or after 1 July 20XX or electing to join the Fund on or after 6 August 20XX are only eligible for the Defined Contribution plan.

Contributions

No DC Member shall make required Contributions beyond five years after becoming employed by a foreign associate or affiliate of the Company unless approved.

Member contributions are calculated depending on the employee's date of joining the option, base yearly earning, age and length of service.

Members shall not be required or permitted to make Required DC Contributions to the Fund after the date that Member has attained 35 years of Pensionable Service.

A DC Member is not required or permitted to make DC Contributions to the Fund while participating as a Defined Benefit Member.

In the event of a DC member becoming certifiably totally disabled, their contribution requirements shall cease for the period of time during which they are in receipt of benefits from the Company's long term disability plan. The Company will instead make contributions on the Member's behalf based on their base earnings at the date of disability, with annual indexing. The Company will not make contributions after the earlier of the date the Member turns 65 or the date of termination of the plan.

There is a maximum contribution limit in respect of each calendar year.

Benefits

The Defined Contribution Option provides the following benefits:

•        Retirement Pension

-       Retirement of a DC Member will occur at the earliest of the following:

o   DC Member terminates employment on or after reaching Normal Retirement Date

o   DC Member reaches the end of the calendar year during which they turned 69.

o   DC Member terminates employment to retire within the 10 years immediately preceding their Normal Retirement Date after being a Member for 2 or more continuous years

o   For DC Members who terminate employment prior to Normal Retirement Date and elected to leave their Company and Employee Accounts in the Fund, at the earlier of reaching the Normal Retirement Date or when elected within 10 year period prior to Normal Retirement Date.

o   Where a DC Member is eligible for benefits under a Company-sponsored disability income program, when the DC Member reaches their Normal Retirement Date.

-       Upon retirement a DC Member is entitled to the distribution of the value of their Employee and Company Accounts and they will transfer that value to a Locked-In Retirement Fund. DC Members may choose to remain a DC Participant until they transfer their accounts, however no further contributions to the Fund can be made by or on behalf of the retired Member

•        Death Benefits

-       Where a DC Member dies before they have been a Member for 2 continuous years, their Spouse or Designated Beneficiary, shall receive the value of the Member's Employee Amount in a lump sum.

-       Where the DC Member without a spouse dies after at least 2 continuous years but prior to distribution of their accounts their Designated Beneficiary will receive the value of their Employee and Company Accounts in a lump sum. Where the DC Member had a Spouse, that Spouse will receive the value of the Members Employee and Company Accounts by the way of transfer to a Locked-In Retirement Fund.

•        Disability Benefits

•        Termination repayments

Investments in Australia

The Fund provided a list of its Australian investments.

The Fund has invested in Australian equity investments. These equity investments have the following characteristics:

•        All investments are listed on the Australian Securities Exchange (ASX).

•        The Fund holds less than 1% of the total equity interests on issue of each Australian company or trust.

•        The Fund has no involvement in the day to day management of the business of any of the Australian companies or trusts.

•        The Fund has no rights to appoint any person to any board, committee or similar, either directly or indirectly, of the Australian company or trust.

•        The Fund has no ability to direct or influence the operation of the Australian company or trust outside of the ordinary rights conferred by the equity interest held.

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

Reasons for decision

Question 1

Is the Fund excluded from liability to withholding tax on its dividend income under paragraph 128B(3)(jb) of the ITAA 1936?

Summary

The Fund is excluded from liability to withholding tax on dividend income derived from its investments in accordance with paragraph 128B(3)(jb) of the ITAA 1936.

Detailed reasoning

Section 128B of the ITAA 1936 imposes liability to withholding tax on income derived by a non-resident that consists of dividend income (subsection 128B(1) of the ITAA 1936), interest income (subsection 128B(2) of the ITAA 1936) as well as other income prescribed in that section.

Subsection 128B(3) of the ITAA 1936 notes that section 128B of the ITAA 1936 will not apply to prescribed categories of income. Relevantly, paragraph 128B(3)(jb) provides an exclusion from withholding tax for interest, dividends and non-share dividends derived by a superannuation fund for foreign residents (subject to the satisfaction of certain conditions).

For the exclusion to apply, the interest, dividend and/or non-share dividend income must be:

•        derived by a superannuation fund for foreign residents (as defined in section 118-520 of the ITAA 1997), and

•        exempt from income tax in the country in which the superannuation fund for foreign residents arise.

The Fund is a non-resident

The Fund is not a resident of Australia for tax purposes. Therefore, the Fund satisfies this requirement.

The Fund is a superannuation fund for foreign residents

Superannuation fund for foreign residents is a defined term in the ITAA 1936. Subsection 6(1) of the ITAA 1936 states:

superannuation fund for foreign residents has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997.

Subsection 995-1(1) of the ITAA 1997 sets out the following:

superannuation fund for foreign residents has the meaning given by section 118-520.

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 Meaning of superannuation fund for foreign residents

(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.

(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.

Consequently, for the Fund to be considered a superannuation fund for foreign residents for the purposes of paragraph 128B(3)(jb) of the ITAA 1936, it must be established that:

a)     the Fund is an indefinitely continuing fund

b)     the Fund is a provident, benefit, superannuation or retirement fund

c)     the Fund was established in a foreign country

d)     the Fund was established and maintained only to provide benefits for individuals who are not Australian residents

e)     The central management and control of the Fund is carried on outside of Australia by entities none of whom are Australian residents

f)       No amount paid to the Fund or set aside for the Fund has been or can be deducted under the ITAA 1997, and

g)     No tax offsets have been allowed or would be allowable for an amount paid to the Fund or set aside for the Fund.

a)     The Fund is an indefinitely continuing fund

The term 'indefinitely continuing fund' is not defined in either the ITAA 1997 or the 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.

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.

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'.

The general view is that an indefinitely continuing fund does not have to continue forever, but rather that the governing rules should not fix an express termination date.

On the facts the Fund's Rules do not provide for winding up at a defined point in time for either the Defined Benefit or Defined Contribution option. The Fund has also provided a letter to the Commissioner which states that the Fund is an indefinitely continuing fund. Therefore, it is accepted that the Fund satisfies this requirement.

b)     The Fund is a provident, benefit, superannuation or retirement fund

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

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.

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.

The court found that the expression takes its meaning from past usage and the meaning of the several expressions must be arrived at in light of their ordinary usage. 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. Likewise, a provident fund must not refer to the provision of funds in a general sense but must relate to a provision against contemplated contingencies.

Both of the above mentioned 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 death, disability or serious illness.

The Fund is a registered pension plan for employees of the Company, established for the sole purpose of providing retirement pension, disability and death benefits to Member's and their beneficiaries.

The Fund provides benefits for members calculated per formulas based on a number of factors including the Member's highest and average earnings during their service, the years of their pensionable service, their age at retirements and their election of a Spouse or beneficiary.

The fund meets this requirement by providing the following benefits to members:

1. Lifetime Pension
2. Disability Retirement
3. Termination Benefits
4. Death Benefits

It is thus accepted that the Fund is a 'provident, benefit, superannuation or retirement fund' on the basis that the objective of the Fund is to provide superannuation for retired employees of the Company.

The Fund will therefore satisfy this requirement.

c)     The Fund was established in a foreign country

The Fund was established and is a registered pension plan in a foreign country.

The Fund therefore satisfies this requirement.

d)     The Fund was established and maintained only to provide benefits for individuals who are not Australian residents

The Fund was established and is maintained only to provide benefits to Members who are not Australian residents.

It is considered that the possibility of a very small number of members being returned residents or becoming Australian residents after ceasing eligible employment is incidental and should not be taken to conclude that the Fund, in this case, has not been established and is not maintained only to provide benefits for non-residents, based on the rules and operation of the Fund.

Therefore, the Fund satisfies this requirement.

e)     The Fund's central management and control is carried on outside Australia by entities none of whom is an Australian resident

Paragraphs 20 and 21 of Taxation Ruling TR 2008/9 Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997 (TR 2008/9) states in respect of the central management and control (CM&C) of a superannuation fund:

20. The CM&C of a superannuation fund involves a focus on the who, when and where of the strategic and high level decision making processes and activities of the fund. In the context of the operations of a superannuation fund, the strategic and high level decision making processes includes:

•        formulating the investment strategy for the fund;

•        reviewing and updating or varying the fund's investment strategy as well as monitoring and reviewing the performance of the fund's investments;

•        if the fund has reserves - the formulation of a strategy for their prudential management; and

•        determining how the assets of the fund are to be used to fund member benefits.

21. The other principal areas of operation of a superannuation fund that form part of the day-to-day or operational side of the fund's activities will not constitute CM&C. These activities do not form part of the CM&C of the fund because they are not of a strategic or high level nature. Rather, these activities are of a more formalistic or administrative nature. Examples of such activities include the acceptance of contributions that are made on a regular basis, the actual investment of the fund's assets, the fulfilment of administrative duties and the preservation, payment and portability of benefits.

Furthermore, paragraphs 10 and 11 of Taxation Ruling TR 2018/5 Income tax: central management and control test of residency (TR 2018/5) states:

10. Central management and control refers to the control and direction of a company's operations. It does not refer to a physical location in which the control and direction of a company is located and may ultimately be exercised in more than one location.

11. The key element in the control and direction of a company's operations is the making of high-level decisions that set the company's general policies and determine the direction of its operations and the type of transactions it will enter.

The central management and control of the Fund is carried out by a Committee made up of individuals who are not residents of Australia. It is therefore reasonable to conclude that the central management and control of the Fund occurs outside of Australia by entities that are not Australian residents.

Therefore, the Fund satisfies this requirement.

f)       No amount paid to the Fund or set aside for the Fund has been or can be deducted under the ITAA 1997

An amount paid to the Fund or set aside for the Fund has not been and cannot be deducted under the ITAA 1997.

Therefore, the Fund will satisfy this requirement.

g)     No tax offset has been allowed or is allowable for such an amount

A tax offset has not been allowed nor would be allowable for any amount paid to the Fund or set aside for the Fund.

Therefore, the Fund will satisfy this requirement.

Conclusion

As all of the above requirements are satisfied, the Fund meets the requirements of being a superannuation fund for foreign residents as defined by section 118-520 of the ITAA 1997 for the purposes of subparagraph 128B(3)(jb)(i) of the ITAA 1936.

The income, consisting of interest, dividend or non-share dividend income, is derived by the Fund

Subsection 128B(3CA) of the ITAA 1936, along with paragraph 128B(3)(jb) of the ITAA 1936 requires the superannuation fund for foreign residents to derive the interest, dividends or non-share dividends paid by Australian resident companies.

The Fund invests directly into Australia, deriving interest, dividend or non-share dividend income directly from its Australian investments. It will, therefore, derive the relevant income for the purposes of subsection 128B(3CA) of the ITAA 1936 and paragraph 128B(3)(jb) of the ITAA 1936.

The Fund is exempt from income tax in the country in which the non-resident resides

As per the facts the Fund is exempt from income tax in its country of residence.

Therefore, the Fund will satisfy this requirement.

Otherwise non-assessable non-exempt

The income received by the Fund will not be non-assessable non-exempt income because of Subdivision 880-C of the ITAA 1997 or Division 880 of the Income Tax (Transitional Provisions) Act 1997.

Income derived by Fund would not be otherwise treated as not assessable and not exempt income by virtue of the above provisions. Accordingly, the above exclusion should not apply to exclude the Fund from entitlement to the withholding tax exemption for superannuation funds for foreign residents.

Conclusion

As all the requirements of paragraph 128B(3)(jb) of the ITAA 1936 are satisfied, the Fund will be entitled to an exemption from withholding tax on dividend income derived in respect of assets acquired on or before 27 March 2018 under paragraph 128B(3)(jb) of the ITAA 1936.

Question 2

Is the Fund excluded from liability to withholding tax on its dividend income derived in respect of assets acquired after 27 March 2018 under paragraph 128B(3)(jb) of the ITAA 1936?

Summary

The Fund is excluded from liability to withholding tax on its dividend income derived in respect of assets acquired after 27 March 2018 under paragraph 128B(3)(jb) of the ITAA 1936.

Detailed reasoning

The Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 introduced extra requirements that must be met for paragraph 128B(3)(jb) of the ITAA 1936 to apply from 1 July 2019 onwards. These extra requirements apply only to assets which were acquired after 27 March 2018. For the purposes of Question 2, which only considers the Fund's assets acquired after 27 March 2018, these extra requirements are applicable.

Relevantly:

i.                 The fund must satisfy the 'portfolio interest test' in relation to the test entity (subsection 128B(3CC)

ii.                The fund must satisfy the 'influence test' (subsection 128B(3CD) in relation to the test entity, and

iii.               The income cannot otherwise be non-assessable non-exempt income of the Fund because of:

a.     Subdivision 880-C of the ITAA 1997, or

b.     Division 880 of the Income Tax (Transitional Provisions) Act 1997.

It has been established in Question 1 above that the Fund has satisfied all of the pre-existing conditions of paragraph 128B(3)(jb) of the ITAA 1936. As such, the below analysis concentrates only on the extra requirements outlined above.

The Fund satisfies the 'portfolio interest test'

Subsection 128B(3CC) of the ITAA 1936 states:

A superannuation fund satisfies the portfolio interest test in this subsection in relation to the test entity at a time if, at that time, the total participation interest (within the meaning of the Income Tax Assessment Act 1997) the superannuation fund holds in the test entity:

(a)   is less than 10%; and

(b)   would be less than 10% if, in working out the direct participation interest (within the meaning of that Act) that any entity holds in a company:

i)       an equity holder were treated as a shareholder; and

ii)      the total amount contributed to the company in respect of non-share equity interests were included in the total paid-up share capital of the company.

Subsection 128B(3CB) defines the test entity to be either the entity that paid the interest, dividends or non-share dividends or, if subsection 128A(3) of the ITAA 1936 applies in relation to a resident trust estate, that trust estate.

Subsection 995-1(1) of the ITAA 1997 defines total participation interest to have the meaning given by section 960-180 of the ITAA 1997, which states:

An entity's total participation interest at a particular time in another entity is the sum of:

(a)   the entity's *direct participation interest in the other entity at that time; and

(b)   the entity's *indirect participation interest in the other entity at that time.

A 'direct participation interest' that the Fund will have in a test entity is defined in the table in subsection 960-190(1) of ITAA 1997 and depends on what type of entity the other entity is.

Item 1 of the table in subsection 960-190(1) and subsection 960-190(2) of the ITAA 1997 provide that a direct participation interest in a company is the 'direct control interest' (within the meaning of section 350 of the ITAA 1936 excluding the operation of subsections 350(6) and (7)) that the first entity holds in the other entity.

Subsection 350(1) of the ITAA 1936 provides that an entity holds a direct control interest in a company at a particular time equal to the percentage of:

(a)   total paid up share capital

(b)   voting rights, or

(c)   rights to distributions of capital or profits that it holds in the company.

Where there are different percentages in each of the above, the direct control interest is the greater or greatest of those percentages. Subsection 350(2) of the ITAA 1936 provides that where an entity holds different percentages of total rights to vote for the purposes of (b) above, the highest of those percentages applies in establishing the direct control interest.

Subsection 960-185(1) of the ITAA 1997 provides that an entity's indirect participation interest in a test entity is established by multiplying its direct participation interest in an intermediate entity by the sum of the intermediate entity's direct and indirect participation interests in the test entity.

The Fund does not hold more than 1% of total equity interests, directly or indirectly, in any of their Australian investments. The Fund has no involvement in, rights to, or influence over, the Australian investment companies outside of the ordinary rights conferred by their equity.

In these circumstances, the Commissioner is satisfied that the total participation interest the Fund holds in the test entities:

•        is less than 10% pursuant to paragraph 128B(3CC)(a) of the ITAA 1936 at all relevant times; and

•        would be less than 10% in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936 at all relevant times.

The Fund therefore satisfies the 'portfolio interest test' in respect of its Australian investments.

The Fund does not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936 in relation to the test entity at the time the income was derived

Subsection 128B(3CD) of the ITAA 1936 states:

A superannuation fund has influence of a kind described in this subsection in relation to the test entity at a time if any of the following requirements are satisfied at that time:

(a)   the superannuation fund:

i)       is directly or indirectly able to determine; or

ii)      in acting in concert with others, is directly or indirectly able to determine;

the identity of at least one of the persons who, individually or together with others, make (or might reasonably be expected to make) the decisions that comprise the control and direction of the test entity's operations;

(b)   at least one of those persons is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of the superannuation fund (whether those directions, instructions or wishes are expressed directly or indirectly, or through the superannuation fund acting in concert with others).

As such, there are two distinct sub-tests within the influence test.

Sub-test 1 of the influence test, as contained in paragraph 128B(3CD)(a) of the ITAA 1936, assesses whether the Fund is able to determine the identity of at least one of the persons who, individually or together with others, makes or is reasonably expected to make, decisions comprising the control and direction of the test entity's operations. This includes situations where the Fund is able to act in concert with others to determine the identity of a relevant decision-maker in the test entity.

Sub-test 1 also extends to situations where the Fund, in its own right, holds the ability to approve or veto decisions which go to the control or direction of the test entity.

Sub-test 2 of the influence test, as contained in paragraph 128B(3CD)(b) of the ITAA 1936, assesses whether at least one of the relevant decision-making persons of the test entity is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of the Fund.

Relevantly, in respect of the investments referred to in this ruling Ruling:

• Neither the Fund, nor any related party, is involved in the day to day management of the business of any of the Australian companies or trusts.
• Neither the Fund, nor any related party, has the right to appoint a director to the Board of Directors of the Australian company, Australian debt issuer or equivalent role in a trust.
• Neither the Fund, nor any related party, holds the right to representation on any investor representative or advisory committee (or similar) of the Australian companies or trusts.
• Neither the Fund, nor any related party, has the ability to direct or influence the operation of the Australian companies or trusts outside of the ordinary rights conferred by the equity interest held.
• The Fund has not entered into or received any side letters, arrangements or agreements.
• The Fund only holds rights to vote in proportion to its equity interest in each of the Australian companies or trusts.

Accordingly, the Fund does not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936 in respect of its Australian investments. The Fund does not have capacity to influence (either directly or indirectly) the day-to-day management of the operations of their investments.

Consequently, the Commissioner accepts that the Fund does not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936.

The income received by the Fund is not non-assessable and non-exempt income of the Fund because of Subdivision 880-C of the ITAA 1997 or Division 880 of the Income Tax (Transitional Provisions) Act 1997

The income received by the Fund will not be non-assessable non-exempt income because of Subdivision 880-C of the ITAA 1997 or Division 880 of the Income Tax (Transitional Provisions) Act 1997.

The Fund therefore satisfy this condition in respect of its current investments referred to in this ruling.

Conclusion

As the Fund has met both the pre-existing and extra requirements under paragraph 128B(3)(jb) of the ITAA 1936 in relation to assets it acquired after 27 March 2018, it will be excluded from withholding tax in relation to dividend income received in respect of those assets.