Edited version of private advice

Authorisation Number: 1051936377662

Date of advice: 22 December 2021

Ruling

Subject: Foreign superannuation fund

Question

Is the Plan a foreign superannuation fund as defined in section 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

This ruling applies for the following period

Income year ending 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts and circumstances

The Taxpayer) was born overseas.

The Taxpayer worked and lived in overseas with the family until emigrating to Australia.

In 20XX the Taxpayer received Australian permanent residency status.

While overseas the Taxpayer contributed to a company sponsored investment program, the Plan.

The Plan, established overseas is a defined contribution account-based system offered by companies of the private sector to their employees and officers overseas.

The Plan is sponsored by overseas companies and offers defined contribution (account-based) retirement plans.

Members of the Plan are all directors, officers and employees of an overseas company.

You have provided a translated benefit plan policy document (the Policy) for the Plan.

In relation to benefits the policy document states benefits guaranteed by the Plan are:

•         Normal Retirement

•         Early Retirement;

•         Disability Benefit;

•         Death Benefit;

•         Pension due to Death;

•         Proportional Benefit;

•         Annual Allowance;

•         Minimum Benefit.

The Policy allows for benefits to be paid on normal retirement where a member is at least 65 years of age and has completed at least 10 years of service.

The Policy allows for benefits to be paid on early retirement where a member is at least 55 years of age and has completed at least 5 years of service.

The Policy allows for payment of disability benefit where a member has at least one year of service, has the disability certified by a physician and is eligible for a Social Security Disability retirement benefit.

The Policy makes a death benefit payment/pension due to death payment upon the death of a member.

The Policy allows for a proportional benefit payment to a member who has elected or is presumed to have elected the deferred proportional benefit institute. The member will be eligible when they reach 55 years of age and have completed at least 5 years of service.

The Policy allows for an Annual Allowance to be granted to a member who is receiving or has received in the year a monthly benefit under the Policy.

Where the requirements for benefits under normal retirement are met, the Policy, under certain conditions may make a minimum benefit payment.

The Policy the Plan also allows for redemption of contributions prior to retirement. A member of the Plan may withdraw their contributions in the Plan upon termination of employment.

The Taxpayer has made no additional investment to the Plan since becoming an Australian resident.

The Taxpayer intends to liquidate their investment and repatriate the funds to Australia in the near future.

Relevant legislative provisions

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

Income Tax Assessment Act 1997 subsection 295-95(2)

Superannuation Industry (Supervision) Act 1993 section 10

Superannuation Industry (Supervision) Act 1993 section 19

Superannuation Industry (Supervision) Act 1993 section 62

Reasons for decision

Summary

The Plan is not a foreign superannuation fund as defined in section 995-1(1) of the ITAA 1997.

Detailed Reasoning

Meaning of 'foreign superannuation fund'

A foreign superannuation fund is defined in subsection 995-1(1) of the 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.

Subsection 295-95(2) of the ITAA 1997 defines Australian superannuation fund as follows:

A superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if:

(a) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and

(b) at that time, the central management and control of the fund is ordinarily in Australia; and

(c) at that time either the fund had no member covered by subsection (3) (an active member) or at least 50% of:

(i) the total market value of the fund's assets attributable to superannuation interests held by active members; or

(ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members;

is attributable to superannuation interests held by active members who are Australian residents.

Thus, 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.

Meaning of 'superannuation fund'

'Superannuation fund' is defined in subsection 995-1(1) of the ITAA 1997 as having the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA).

Subsection 10(1) of the SISA states:

superannuation fund means:

(a) a fund that:

(i) is an indefinitely continuing fund; and

(ii) is a provident, benefit, superannuation or retirement fund; or

(b) a public sector superannuation scheme.

The High Court examined both the terms superannuation fund and fund in Scott v Commissioner of Taxation of the Commonwealth (No. 2) (1966) 10 AITR 290; (1966) 40 ALJR 265; (1966) 14 ATD 333 (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 therefrom being capitalised. I do not put this forward as a definition, but rather as a general description.

Meaning of 'provident, benefit, superannuation or retirement fund'

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) (1967) 41 ALJR 232; (1967) 14 ATD 519 (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 accordance with section 62 of the SISA, a regulated superannuation fund must be maintained solely for one or more of the 'core purposes'; or for one or more of the core purposes and for one or more of the 'ancillary purposes'.

For the purposes of section 62 of the SISA, 'core purposes' means the provision of benefits:

•         on or after retirement from gainful employment; or

•         on attaining a prescribed age; or

•         on the member's death if the death occurred before the member's retirement or attaining the prescribed age.

In accordance with paragraph 62(1)(b) of the SISA, 'ancillary purposes' means:

•         the provision of benefits on or after termination of member's employment with an employer who had at any time contributed to the fund in relation to the member; or

•         provision of benefits on or after cessation of work on account of ill-health; or

•         provision of benefits on member's death if the death of the member occurred after member's retirement.

Notwithstanding the SISA applies only to 'regulated superannuation funds' (as defined in section 19 of the SISA), and foreign superannuation funds do not qualify as regulated superannuation funds as they are established and operate outside Australia, the Commissioner views the SISA (and the Superannuation Industry (Supervision) Regulations 1994 (SISR)) as providing 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, the Commissioner's view is that 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 SISA and the SISR.

In the present case, the Plan allows withdrawal of benefits when members reach retirement age, death or disability. The Policy the Plan also allows for redemption of contributions prior to retirement. A member of the Plan may withdraw their contributions in the Plan upon termination of employment. Therefore, it cannot be said that the Plan is set up for the express purpose of providing for the payment of benefits in the nature of superannuation.

Based on the above, the Plan does not meet the definition of superannuation fund as funds are ordinarily only obtainable once the member reaches retirement age. Therefore, on this basis, together with the above, the Commissioner considers the Plan to not be a foreign superannuation fund as defined in subsection 995-1(1) of the ITAA 1997.