Edited version of private advice

Authorisation Number: 1052183365193

Date of advice: 23 October 2023

Ruling

Subject: Dividend withholding tax

Question

Is the Fund exempt from liability to withholding tax on dividend income derived from its Australian investments 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 2022

Year ending 30 June 2023

The scheme commenced on:

30 June 2022

Relevant facts and circumstances

The Fund is a defined benefit pension plan established outside of Australia.

The Fund also administers other defined benefit retirement plans that guarantee, through plan provisions, a specific retirement benefit to qualified employees upon retirement.

The Fund is administered by a Board of Trustees.

The custodian bank is responsible for settling all security trades and maintains accurate records of all transactions related to investment activity. It serves as the trustee of all assets within its control.

The investment assets of the plans are combined into a comingled investment pool.

Each plan receives a proportionate investment allocation of income or loss from the pool in accordance with its respective ownership percentage.

All funds held by the Fund are held in trust for the exclusive benefit of members.

The Fund's assets come from member and employer contributions and investment earnings on those contributions that accumulate over time.

The benefits provided by the Fund include superannuation retirement benefits, early retirement benefits, disability retirement benefits and death benefits.

The Fund's Australian investments are all securities listed on the ASX.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 128B

Does IVA apply to this private ruling?

No

Reasons for decision

All legislative references are to the ITAA 1936 unless otherwise identified.

Section 128B 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.

Under paragraph 128B(3)(jb) of the ITAA 1936, for the System 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 Fund:

              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.

The Fund satisfies these requirements.

In addition, given the specific circumstances of the Fund, the additional requirements in subsection 128B(3CA) of the ITAA 1936 must also be met.

Relevantly:

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

             ii.                the Fund 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.

The Fund satisfies these requirements.