Edited version of private advice

Authorisation Number: 1052034032969

Date of advice: 27 September 2022

Ruling

Subject: Foreign superannuation funds - non-assessable non-exempt income

Question

Is the Foreign Trust excluded from liability to withholding tax on dividend income derived from its Australian investments listed in Appendix 1 to the facts and circumstances of this Ruling in accordance with paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Background

1.         Foreign Trust was established by the Foreign Country Legislature under the Code to provide benefits to eligible Foreign Country public service employees.

2.         Foreign Trust is a defined benefit pension plan in its own right and also administers other defined benefit retirement plans that guarantee, through plan provisions, a specific retirement benefit to qualified employees upon retirement (collectively referred to as the 'Pension Plans').

3.         The Pension Plans were established in Foreign Country to provide benefits for individuals who are residents of the Foreign Country and are public service employees of the public service employers (collectively referred to as 'Pension Plan Employees').

4.         Foreign Trust also oversees two other plans (Other Plans); however these other plans are not part of Foreign Trust's reporting entity and benefits payable to participants of the other plans are not obligations of the Foreign Country.

5.         For the avoidance of doubt, the Other Plans are not covered by this Ruling.

Foreign Trust

6.         Foreign Trust's head office is located at 123 ABC Street, Foreign Country.

7.         Foreign Trust's mission is to provide secure retirement benefits for members of the Pension Plans.

8.         Foreign Trust operates under legislative mandate and is considered a component unit of the Foreign Country for financial reporting purposes. Foreign Trust's financial statements are included in the Foreign Country's Comprehensive Annual Financial Report.

9.         Foreign Trust is administered by its Board of Trustees (Board).

10.      The Chief Investment Officer is responsible for working with the Board to develop investment policy and make decisions with respect to asset allocation, portfolio structure, investment manager / consultant selection and termination, and custodian selection.

11.      The investment consultant is charged with assisting the investment staff in providing advice and recommendations to the Board on all investment matters and to discharge their investment duties solely in the interest of the Foreign Trust's members and benefit recipients.

12.      The custodian bank is responsible for settling all security trades as authorised by the investment managers. The custodian bank maintains accurate records of all transactions related to investment activity and serves as trustee of all assets within its control. It is responsible for capturing and recording all monies due to the Foreign Trust from investment activities and investment income.

13.      Custodian Bank Co is the custodian bank for the Foreign Trust's Australian Investments (detailed at Appendix 1 to the facts and circumstances of this Ruling).

Assets

14.      The Foreign Trust administers the Pension Plans and is the custodian of the Pension Plans' assets. Although each of the Pension Plans is a legally separate plan, the funds are included in the Foreign Trust's reporting entity due to their financial relationships and because the governing boards are substantially identical.

15.      The investment assets of the Pension Plans administered by the Foreign Trust are combined into a commingled investment pool as authorised by state statute.

16.      Each Pension Plan owns an equity position in the pool and receives a proportionate investment allocation of income or loss from the pool in accordance with its respective ownership percentage. Therefore, the rate of return on investments is approximately the same for each of the Pension Plans.

17.      All funds held by the Foreign Trust are held in trust for the exclusive benefit of the members.

Members

18.      To be a member of the Foreign Trust, an individual must be employed by one of the Pension Plan Employees.

19.      Membership is contingent upon the Pension Plan Employees obtaining approval to participate from the Board.

20.      Membership in the Foreign Trust shall cease by a member withdrawing their accumulated contributions, by a member withdrawing from active service with a retirement allowance, or by a member's death.

Contributions

21.      The Foreign Trust's funds come from member and employer contributions and investment earnings on those contributions that accumulate over time.

22.      The Board sets employer contribution rates as per Foreign Country Statute.

Benefits

23.      The Foreign Trust provides benefits directly to the members.

24.      Benefits provided by the Foreign Trust to its members are actuarially determined and include:

•                superannuation retirement benefits

•                early retirement benefits

•                disability retirement benefits, and

•                death benefits.

25.      Depending on the Pension Plan, members are eligible to receive retirement benefits when the member either reaches normal retirement age (being between XX and XX years of age) or retires after providing XX years of continuous creditable service (regardless of age).

26.      Except for in extraordinary circumstances, members cannot receive loans, partial refunds or hardship withdrawals of their contributions. Such extraordinary circumstances include loss of personal property due to casualty and sudden or unexpected illness or accident.

27.      Upon a member's termination of employment for any reason before retirement, their accumulated contributions, together with interest thereon, are refunded. Upon a member's termination, the member is only entitled to a refund of the member's contribution and is not entitled to the contributions made by the employer on behalf the member.

28.      If a member terminates their employment and elects to receive a refund of their contributions and interest, federal income tax of XX per cent will be withheld from the taxable portion of the refund. Further, if a member withdraws contributions before reaching age XX, the Foreign Country Tax Authority may impose an additional XX per cent federal tax penalty on the distribution. Upon withdrawal of contributions, a member forfeits service credits represented by those contributions.

29.      Upon the death of a member who is not eligible for any other death benefit, their accumulated contributions, together with interest, are paid to their beneficiary.

Other relevant facts

30.      The Foreign Trust was established in and is a resident of the Foreign Country for tax purposes.

31.      The Foreign Trust is a trust forming part of a pension, profit sharing or stock bonus plan qualified under Foreign Country Statute, which is exempt from taxation in Foreign Country.

32.      The Foreign Trust's central management and control is carried on outside Australia by entities none of whom are Australian residents.

33.      The Foreign Trust is an indefinitely continuing fund and a provident, benefit, superannuation or retirement fund.

34.      The Foreign Trust has received and will receive dividend and non-share dividend income from companies who are residents of Australia for tax purposes.

35.      An amount paid to the Foreign Trust or set aside for the Foreign Trust has not been and cannot be deducted under the ITAA 1936 or the Income Tax Assessment Act 1997 (ITAA 1997).

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

37.      The income of the Foreign Trust is not non-assessable non-exempt income because of either Subdivision 880-C of the ITAA 1997, or Division 880 of the Income Tax (Transitional Provisions) Act 1997.

The Foreign Trust's Australian Investments

38.      The Foreign Trust's Australian investments are listed at Appendix 1 to the relevant facts and circumstances of this Ruling and include equity investments in Australian resident companies.

39.      To the best of the Foreign Trust's knowledge, the investments held by the Foreign Trust have the following characteristics:

•                all securities are listed on the Australian Securities Exchange (ASX) or another recognised stock exchange

•                the Foreign Trust holds less than 10% of the total participation interests on issue in each of the entities

•                the Foreign Trust has no involvement in the day-to-day management of any of the entities

•                the Foreign Trust has no right to representation on the board of directors, or any investor representative or advisory committee (or similar) of any of the entities

•                the Foreign Trust has no ability to direct or influence the operation of the entities outside the ordinary rights conferred by the interest held

•                the Foreign Trust's interests do not provide it with an entitlement to either directly or indirectly determine the identity of any person who makes decisions that comprise the control and direction of the entities' operations, and

•                the Foreign Trust only holds rights to vote in proportion to the equity interests held.

Appendix 1: Australian Investments

Relevant legislative provisions

Income Tax Assessment Act 1936 Paragraph 128B(3)(jb)

Reasons for decision

Summary

The requirements of paragraph 128B(3)(jb) of the ITAA 1936 are satisfied. Therefore, the Foreign Trust is excluded from liability to withholding tax on its dividend income derived from its Australian investments listed at Appendix 1 to the facts and circumstances of this Ruling under 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.

Broadly, paragraph 128B(3)(jb) of the ITAA 1936 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 non-resident that is 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 resides.

Except where the transitional rules in Schedule 3 to the Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 (Amendment Act)apply, from 1 July 2019, the extra requirements in subsection 128B(3CA) of the ITAA 1936 must also be met.

Schedule 3 of the Amendment Act amended the ITAA 1936 to improve the integrity of the income tax law to limit access to tax concession for foreign investors. For superannuation funds for foreign residents, this was achieved by limiting the withholding tax exemption to interest, dividend and non-share dividend income derived from an entity in which the superannuation fund has a portfolio-like interest.

The amendments to limit the withholding tax exemption apply to income that is derived by a superannuation fund on or after 1 July 2019.

Paragraph 128B(3)(jb) of the ITAA 1936

The term 'superannuation fund for foreign residents' is defined in section 118-520 of the ITAA 1997 as follows:

Meaning of superannuation fund for foreign residents

(1)       A fund is a superannuation fund for foreign residents at a time if:

(a)       at the 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 deducted under this Act; or

(b)       a tax offset has been allowed or is allowable for such an amount.

Consequently, for the Foreign Trust to be excluded from withholding tax on dividend income that it derives from investments into Australia under paragraph 128B(3)(jb) of the ITAA 1936, it must be established that the Foreign Trust:

    i.             is an indefinitely continuing fund

   ii.             is a provident, benefit, superannuation or retirement fund

  iii.             was established in a foreign country

  iv.             was established and maintained only to provide benefits for individuals who are not Australian residents

   v.             has its central management and control carried on outside of Australia by entities none of whom are Australian residents

  vi.             does not receive or have amounts set aside for it that have been or can be deducted under the ITAA 1936 or the ITAA 1997

vii.             does not receive or have amounts set aside for it that give rise to a tax offset

viii.             receives income that consists of interest, or consists of dividends or non-share dividends paid by a company that is an Australian resident, and

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

These requirements are considered below.

i. An indefinitely continuing fund

The term '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 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.

3. ...money resources.

In Scott v Commissioner of Taxation (No 2) (1966) 40 ALJR 265 (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; who stated that 'for present purposes, the point is the need for "money" or "other property" to constitute a fund'.

The Foreign Trust was established as a commingled fund in which each separate Pension Plan owns an equity position in the pool and receives a proportionate investment allocation of income or loss from the pool in accordance with its respective ownership percentage. The Foreign Trust is responsible for managing the assets of the Pension Plans, for the sole purpose of providing retirement benefits to the members (or their beneficiaries) in alignment with other contemplated contingencies via the Pension Plans.

The Foreign Trust is therefore a 'fund' within the ordinary meaning of the term.

Neither the ITAA 1936 or the ITAA 1997 provide guidance on the meaning of 'indefinitely continuing', however, the ordinary meanings of 'indefinitely' and 'continuing' involve little ambiguity or controversy.

The Australian Oxford Dictionary defines the 'indefinitely' as '1. for an unlimited time...2. in an indefinite manner' and 'continuing' as '...persist in, maintain, nonstop'.

The Foreign Trust was established by the Foreign Country Legislature under the Code, the terms of which do not provide that the Foreign Trust must be wound up after a specified period of time. The Foreign Trust therefore cannot be discontinued until the Foreign Country Legislature amends or repeals the Code.

In addition, there is no indication that there is any contemplation of the Foreign Trust ending at a defined point in time and there is no expectation that the Pension Plans or the Foreign Trust will be discontinued in the foreseeable future.

Therefore, it is accepted that the Foreign Trust is an indefinitely continuing fund.

ii. A provident, benefit, superannuation or retirement fund

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

In Scott, Windeyer J stated at 278:

There is no definition in the Act of a superannuation fund. The meaning of the term must therefore depend upon ordinary usage...I have come to the conclusion that there is no 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 Mahony v Commissioner of Taxation (1967) 41 ALJR 232, Kitto J stated at 232:

There was no definition in the Act of 'a provident, benefit or superannuation fund', and the meaning of the several expressions must therefore be arrived at in light of ordinary usage and with only one piece of assistance to be gathered from the immediate context. Since a fund, if its income was to be exempt under the provision, was separately required to be one established for the benefit of employees, each of the three descriptive words 'provident', 'benefit' and 'superannuation' must be taken to have connoted a purpose narrower than the purpose of conferring benefits, in a completely general sense, upon employees. Precise definition may be difficult, and in any case is unnecessary for present purposes. All that need be recognized 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 employment, 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 in a general sense, but characterized by some specific future purpose. A funeral benefit is a familiar example.

In Cameron Brae Pty Limited v FCT (2007) 161 FCR 468, the Full Federal Court held that the relevant fund was a superannuation fund for the purposes of former section 82AAE of the ITAA 1936. Jessup J stated at 506:

In answering the question whether the fund was a "superannuation fund" as the term is ordinarily understood, it is, in my view, critical that payments could not have been made out of the fund (other than by way of administration expenses, taxation, etc) save to members of the relevant discretionary class, and save in circumstances which fell within the ordinary understanding of superannuation. A proper characterisation of the fund should, in my view, depend upon the purposes for which the assets and moneys of the fund might have been used rather than upon the quality of the rights of individual members of the fund. If the fund could have been used only to achieve what might be described as a superannuation purpose, I would describe the fund as a "superannuation fund". That a particular member of a discretionary class might not, ultimately, have received any payment, was not, in my view, disqualifying.

ATO Interpretative Decision ATO ID 2009/67 Income Tax: Superannuation fund for foreign residents (ATO ID 2009/67) refers to these authorities and provides the following guidance on the meaning of the phrase:

The courts have held that for a fund to be a 'provident, benefit, superannuation or retirement fund', the fund's sole purpose must be to provide superannuation benefits, that is, benefits to a member upon the member reaching a prescribed age or upon their retirement, death or other cessation of employment (Scott v. FC of T (No 2) (1966) 14 ATD 333; (1966) 10 AITR 290, per Windeyer J; Mahony v. FC of T (1967) 14 ATD 519, per Kitto J; Walstern Pty Ltd v. Commissioner of Taxation (2003) 138 FCR 1; 2003 ATC 5076; (2003) 54 ATR 423, per Hill J and Cameron Brae Pty Ltd v. Federal Commissioner of Taxation (2007) 161 FCR 468; 2007 ATC 4936; (2007) 67 ATR 178, per Stone and Allsop JJ).

The relevant authorities therefore establish that in order for a fund to qualify as a 'provident, benefit, superannuation or retirement fund', it must have the sole purpose of providing retirement benefits or benefits in other contemplated contingencies (such as death, disability or serious illness).

The Foreign Trust is responsible for managing the funded assets of the Pension Plans. The Pension Plans are pension plans that exist to benefit individuals who are residents of the Foreign Country and are public service employees of the Pension Plan Employers.

Depending on the Pension Plan, members are eligible to receive retirement benefits when the member either reaches normal retirement age (being between XX and XX years of age) or retires after providing XX years of continuous creditable service (regardless of age).

The circumstances in which a member of each of the Pension Plans can ordinarily receive funds from the Foreign Trust upon retirement from employment are clearly consistent with those of a provident, benefit, superannuation or retirement fund.

Further, the alternative circumstances of access available to members and their beneficiaries, which include disability and death benefits, are considered to align with the contemplated contingencies of a 'provident, benefit, superannuation or retirement fund' as outlined in the relevant judicial decisions and ATO ID 2009/67.

As both the objective of the Foreign Trust and the actual operation of the Foreign Trust have the sole purpose of providing retirement benefits or benefits in alignment with other contemplated contingencies via the Pension Plans, the Foreign Trust is considered to be a provident, benefit, superannuation or retirement fund.

It is therefore reasonable to conclude that the Foreign Trust satisfies this requirement.

iii. Established in a foreign country

The Foreign Trust and all of the Pension Plans were established in the Foreign Country.

Therefore, the Foreign Trust was established in a foreign country and this requirement is satisfied.

iv. Was established and maintained only to provide benefits for individuals who are not Australian residents

The Foreign Trust was established and is maintained to provide benefits to the members of the Pension Plans, who are or were public service employees of the Pension Plan Employers, all of whom are not Australian residents.

Therefore, the Foreign Trust satisfies this requirement.

v. Central management and control is carried on outside Australia by entities none of whom is an Australian resident

The Foreign Trust's head office is located in Foreign Country. In addition, the Foreign Trust's central management and control is carried on outside of Australia by persons none of whom is a resident of Australia.

Based on the above, it is reasonable to conclude that the central management and control of the Foreign Trust occurs outside of Australia by entities that are not Australian residents.

Therefore, the Foreign Trust satisfies this requirement.

vi. Does not receive, or have amounts set aside for it, that have been or can be deducted under the ITAA 1936 or ITAA 1997

The Foreign Trust has advised that no amounts that have been paid to the Foreign Trust, or have been set aside to be paid to the Foreign Trust, have or can be deducted under the ITAA 1936 or ITAA 1997.

Therefore, the Foreign Trust satisfies this requirement.

vii. Does not receive, or have amounts set aside for it, that give rise to a tax offset

The Foreign Trust has advised that no amounts that have been paid to the Foreign Trust, or set aside to be paid to the Foreign Trust, are amounts for which a tax offset has been allowed, or would be allowable, under the ITAA 1936 or the ITAA 1997.

Therefore, the Foreign Trust satisfies this requirement.

viii. Receives income that consists of interest, or consists of dividends or non-share dividends paid by a company that is an Australian resident

The Foreign Trust receives Australian sourced income in the form of dividends from the entities listed at Appendix 1 to the facts and circumstances of this Ruling, which are Australian resident companies.

Therefore, the Foreign Trust satisfies this requirement.

ix. Is exempt from income tax in the country in which it resides

The Foreign Country Tax Authority has stated that the Foreign Trust is exempt from taxation in Foreign Country under the Code.

Therefore, the Foreign Trust is exempt from tax in the country in which it resides and this requirement is satisfied.

Conclusion

As all of the above requirements are satisfied, the Foreign Trust meets the requirements of being a 'superannuation fund for foreign residents' as defined by section 118-520 of the ITAA 1997.

The Foreign Trust therefore meets the requirements of paragraph 128B(3)(jb) of the ITAA 1936.

As outlined above, due the operation of the Schedule 3 of the Amendment Act, in order to be excluded from liability to withholding tax under paragraph 128B(3)(jb) of the ITAA 1936, the additional requirements in subsection 128B(3CA) of the ITAA 1936 must also be met.

Relevantly:

i. the Foreign Trust must satisfy the 'portfolio interest test' in relation to the entities (subsection 128B(3CC) of the ITAA 1936)

ii. the Foreign Trust must satisfy the 'influence test' (subsection 128B(3CD) of the ITAA 1936) in relation to the entities, and

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

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

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

These requirements are considered below.

i.       The Foreign Trust satisfies the 'portfolio interest test' in relation to the entities

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

(3CC) 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.

As outlined at Appendix 1 to the facts and circumstances of this Ruling, the Foreign Trust holds less than 10% of the total participation interests in the entities. Further, the Foreign Trust would hold less than 10% of the total participation interests in the circumstances detailed at paragraph 128B(3CC)(b) of the ITAA 1936.

As such, it is reasonable for the Commissioner to conclude that the Foreign Trust satisfies the 'portfolio interest test' in respect of its Australian investments listed at Appendix 1 to the facts and circumstances of this Ruling.

ii.      The Foreign Trust satisfies the 'influence test' in relation to the entities

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

(3CD) 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 foreign superannuation 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 foreign superannuation fund is able to act in concert with others to determine the identity of a relevant decision-maker in any of the entities.

Sub-test 1 also extends to situations where the foreign superannuation fund, in its own right, holds the ability to approve or veto decisions which go to the control or direction of any of the entities.

Law Companion Ruling LCR 2020/3 - The superannuation fund for foreign residents withholding tax exemption and sovereign immunity (LCR 2020/3) provides examples and guidance on the 'influence test' and states the following at paragraphs 11 to 13 with respect of sub-test 1:

11. Whether the relevant entity is able to determine the identity of (to settle or decide upon, to choose or appoint) one of those persons is a question of fact. The phrase 'able to' focuses on the relevant entity's capacity or power. The sub-test is therefore not limited to situations where the entity has already determined, or intends to determine, the identity of one of the relevant decision makers. A right to determine will be sufficient for the requisite level of influence to exist.

12. The relevant entity will not be 'able to' determine, as a matter of fact, where it has irrevocably and unconditionally waived its rights by way of a legally enforceable agreement.

13. The sub-test also extends to situations where the relevant entity has the indirect capacity to determine the identity of one of the relevant decision makers. This may occur, for example, where the relevant entity controls another entity and that other entity holds the right to determine the decision-maker's identity.

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 Foreign Trust.

LCR 2020/3 provides the following guidance at paragraph 29 in respect of sub-test 2:

29. The three matters ('accustomed', 'obliged' or 'might reasonably be expected to') are not a composite phrase denoting a single test; they comprise different considerations each of which is sufficient to establish influence:

•                Whether a person is 'accustomed' to act in accordance with the directions, instructions or wishes of the relevant entity requires an analysis of past facts. This necessitates an examination of any discernible pattern of the person following the directions, instructions or wishes given by the relevant entity.

•                Whether a person is 'obliged' to act in accordance with the directions, instructions or wishes of the relevant entity depends upon a formal or informal obligation existing at the relevant time.

•                Whether a person 'might reasonably be expected' to act in accordance with the directions, instructions or wishes of the relevant entity requires a prediction as to future events and a consideration as to the objective likelihood of those future events occurring. This requires a consideration of all of the facts and circumstances impacting upon the relationship between the two parties.

The following are relevant in determining whether the Foreign Trust satisfies the 'influence test' in respect of its Australian investments listed at Appendix 1 to the facts and circumstances of this Ruling:

•                the Foreign Trust has no direct or indirect involvement in the day-to-day management of the business of any of the entities

•                the Foreign Trust has no direct or indirect right to appoint a director to the board of directors, or any investor representative or advisory committee (or similar) of any of the entities

•                the Foreign Trust has no direct or indirect ability to direct or influence the operation of the entities outside the ordinary rights conferred by the interest held

•                the Foreign Trust's interests do not provide it with an entitlement to either directly or indirectly determine the identity of any person who makes decisions that comprise the control and direction of the entities' operations, and

•                no person involved in the control and direction of the entities' operations is accustomed or obliged to act in accordance with the direct or indirect directions, instructions or wishes of the Foreign Trust.

Based on the above, the Commissioner has determined that it is reasonable to conclude that the Foreign Trust does not have influence over the entities listed at Appendix 1 to the facts and circumstances of this Ruling of the kind described in subsection 128B(3CD) of the ITAA 1936.

Therefore, the Foreign Trust satisfies this requirement.

iii.     the income derived by the Foreign Trust cannot otherwise be non-assessable non-exempt income.

The income of the Foreign Trust is not non-assessable non-exempt income because of subdivision 880-C of the ITAA 1997.

Therefore, the Foreign Trust satisfies this requirement.