Edited version of private advice

Authorisation Number: 1052364759395

Date of advice: 27 March 2025

Ruling

Subject: Superannuation fund for foreign residents - withholding tax

Question 1

Is the Fund excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from its Australian investments as listed in the ruling, in accordance with paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer 1

Yes.

Question 2

Is the interest, dividend and non-share dividend income derived by the Fund from its Australian investments listed in this ruling not assessable and not exempt income of the Fund under section 128D of the ITAA 1936?

Answer 2

Yes.

This ruling applies for the following periods:

1 July 20XX to 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Fund

The Fund was established by Trust Deed in a foreign country (Country A) and provides pension benefits under the Scheme Rules for employees of certain company employers, which are based in Country A.

The Fund is a resident of Country A and is exempt from taxation under the Country A's laws.

The Fund is managed in Country A by the Trustee, which exists only for the purpose of acting as Corporate Trustee of the Scheme. The Trustee Directors are appointed by the principal company employer and partly nominated by members of the scheme. The Trustee Directors are not Australian residents.

The Trustee of the Fund invests on behalf of the Fund and does not invest on behalf of any other plan or scheme.

The Fund is governed by two sets of rules referred to as Scheme Rules where one rule applies to members who joined the Scheme before April 20XX and the other rule applies members who joined after April 20XX.

The members of the Fund are limited to employees of certain company employers in Country A.

The purpose of the Fund is to secure pensions and other benefits for employees of the employer. Pensions and other benefits provided to employees are funded by contributions which are made by employees to the employer which in turn is assigned to the Trustee to secure pensions and other benefits for employees.

Eligibility of members

The eligibility of employees to become Members of the Fund is determined by the Scheme Rules.

How the Fund is governed

The Fund is administered by the Trustee, who is responsible for the administration and investment policy of the Fund. The Trustee, through its board of directors, make investment decisions on behalf of the Fund in order to secure pensions and other benefits for the Fund's members on advice from several Committees.

No Australian residents are involved in the central management and control of the Fund in any capacity.

Contributions to the Fund

In accordance with the Scheme Rules, the Employers must contribute to the Scheme at such rates as the Trustee determines in accordance with consultation from the actuary.

In accordance with the Scheme Rules, each member who is employed with the Employers must contribute to the scheme at a specified rate of scheme earnings.

The Trustee may allow a Member to pay additional voluntary contributions to the Scheme but this is limited to a certain percentage of the Member's scheme earnings.

Winding up or termination

The Trust Deed and Scheme Rules outline provisions made in the form of winding up and rights on the winding up of the Fund. The Fund is an indefinitely continuing fund with no pre-determined end date.

Pension and other benefits

The Fund's objective is to provide its members pensions and/or to pay other benefits in respect of retirement, incapacity and in respect of death of the members.

The Fund does not provide benefits as a result of events other than retirement, incapacity or death.

Other facts

No amount paid to the Fund can be deducted under the Income Tax Assessment Act 1997 (ITAA 1997) or ITAA 1936

No tax offsets would be allowable for an amount paid to the Fund or set aside for the Fund.

The income of the Fund is not non-assessable non-exempt income of the Fund because of either:

•                     Subdivision 880-C of the ITAA 1997, or

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

The Fund's Australian investments

The Fund is in receipt of Australian sourced income in the form of interest and dividends.

A list of Australian investments is attached at Appendix 1 of the ruling. The Fund's Australian investments were all classified as shares, debt securities or units in an Attribution Managed Investment Trust (AMIT).

One of the Fund's Australian investment has an Advisory Committee governance process relating to investors. The Fund holds a minority interest in this investment. The Fund has waived its ability to appoint a person to the Advisory Committee for this investment.

Therefore, in respect of each of the Fund's Australian investments:

•                     The Fund does not hold more than 10% of the total participation interests in each Australian investment.

•                     The Fund has not entered into or received any side letters, arrangements or agreements.

•                     The Fund does not hold any veto rights on security holder votes.

•                     The Fund does not hold any right to appoint a person to a board, committee, or similar, either directly or indirectly.

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

Summary

The Fund is excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from its Australian investments as listed in the ruling, in accordance with paragraph 128B(3)(jb) of the ITAA 1936.

Detailed reasoning

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

•                     consists of interest, or consists of dividends or non-share dividends paid by a company that is a resident; and

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

Further, from 1 July 2019, the extra requirements in subsection 128B(3CA) of the ITAA 1936 must also be met.

Each of these requirements are considered below.

The Fund is a non-resident

The Fund is confirmed to be a resident of Country A.

Therefore, the Fund satisfies this requirement.

Superannuation fund for foreign residents

Section 118-520 of the ITAA 1997 provides:

(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 is 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.

An indefinitely continuing fund

The Fund was established in Country A under Deed and is governed by Scheme Rules to secure pensions and other benefits for employers of the employers.

The Scheme Rules provide instances when the Scheme may be terminated either by the employer or the Trustee.

Notwithstanding this, the Fund has provided an attestation that confirms that the Fund is an indefinitely continuing fund and the Scheme Rules for the Fund do not provide for a termination date.

Therefore, the Fund satisfies this requirement.

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 1997 or the ITAA 1936.

ATO Interpretative Decision ATO ID 2009/67 Income Tax: Superannuation fund for foreign residents (ATO ID 2009/67) provides guidance on the meaning of the phrase 'provident, benefit, superannuation or retirement fund':

None of the four descriptors 'provident', 'benefit', 'superannuation' or 'retirement fund' in subparagraph (a)(ii) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997 are defined. The terms have, however, been the subject of judicial consideration.

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 above establishes that 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 allowable contemplated contingencies (such as death, disability or serious illness).

The purpose of the Fund is to provide retirement pension, death benefits, pension for spouses, civil partners and children.

The Fund has a pension age for pension benefits, provides access to lifetime pension for Incapacity and provides for death benefits and pensions partners and children where a member dies.

Therefore, it can be concluded that the sole purpose of the Fund is to provide retirement benefits or benefits in other allowable contemplated contingencies and, as such, satisfy this requirement.

Established in a foreign country

The Fund was established under the Trust Deed in Country A.

Therefore, the Fund satisfies this requirement.

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

The Fund was established to provide retirement benefits for individuals who are employees of certain employers which are companies in Country A.

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.

Central management and control (CM&C)

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, paragraph 10 and 11 of the 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 on outside Australia by the Trustee of the Fund, which is registered Country A.

Furthermore, the Fund has also advised that its CM&C is carried on outside of Australia by entities none of whom are Australian residents.

Based on the above, the CM&C of the Fund occurs in Country A by entities that are not Australian residents.

Therefore, the Fund satisfies this requirement.

Subsection 118-520(2)

The Fund has advised that no amount paid to the entity or set aside for the entity has not been or cannot be deducted under ITAA 1936 or ITAA 1997 and a tax offset has not been allowed or is not allowable for such an amount.

Therefore, the Fund satisfies these requirements.

Conclusion on section 118-520 of the ITAA 1997

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.

Subparagraph 128B(3)(jb)(ii) of the ITAA 1936

Paragraph 128B(3)(jb) of the ITAA 1936 will only apply to interest, or to dividends and non-share dividends paid by Australian resident companies.

The Fund has provided a list of its Australian Investments. This list identifies that the fund's Australian investments are shares, debt interests and units in an AMIT, the income which consists of dividends and interest.

Therefore, the Fund is in receipt of Australian sourced income in the form of interest and dividends from these Australian investments.

Therefore, the Fund will satisfy this requirement.

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

The Fund is a resident of Country A and is exempt from taxation in accordance with the laws of Country A.

Therefore, the Fund satisfies this requirement.

Subsection 128B(3CA) of the ITAA 1936

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. Generally, these extra requirements apply to income derived from 1 July 2019.

Relevantly:

•                     The Fund must satisfy the 'portfolio interest test' in relation to the test entity (subsection 128B(3CC) of the ITAA 1936)

•                     The Fund must satisfy the 'influence test' (subsection 128B(3CD) of the ITAA 1936) in relation to the test entity, and

•                     The income cannot otherwise be non-assessable 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 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.

The Fund holds less than 10% of the total participation interests in each of the Australian investments.

Further, the Fund would hold less than 10% of the total participation interests in each Australian investment in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936.

Therefore, the Fund satisfies the 'portfolio interest test' in respect of its Australian investments.

The Fund satisfies the 'influence test'

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:

­             is directly or indirectly able to determine; or

­             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.

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 at paragraphs 11 to 12 with respect of sub-test one:

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.

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 Fund's Australian investments in this Ruling:

•                     The Fund does not hold more than 10% of the total participation interests in the Australian investment in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936.

•                     The Fund has not entered into or received any side letters, arrangements or agreements.

•                     The Fund does not hold any veto rights on security holder votes.

•                     The Fund does not hold any right to appoint a person to a board, committee or similar, either directly or indirectly.

As noted above, one of the Fund's Australian investments has an Advisory Committee governance process relating to investors. The Fund holds a minority interest in this investment. The Fund has waived its ability to appoint a person to the Advisory Committee for this investment. Therefore, the Commissioner has concluded above that the Fund does not hold any right to appoint a person to a board, committee, or similar, either directly or indirectly for the period of the ruling.

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

Otherwise non-assessable non-exempt

The Fund has advised that 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.

Therefore, the Fund satisfies this requirement.

Conclusion

Having regard to the requirements of paragraph 128B(3)(jb) of the ITAA 1936, the Fund is excluded from withholding tax in relation to interest, dividend and non-share dividend income derived from its investments listed in Appendix 1 of this Ruling.

Question 2

Summary

Interest and/or dividend income derived by the Fund in respect of its current investments in Australia is not assessable and not exempt income of the Fund under section 128D of the ITAA 1936.

Detailed reasoning

Section 128D of the ITAA 1936 provides as follows:

Income other than income to which section 128B applies by virtue of subsection (2A), (2C) or (9C) of that section upon which withholding tax is payable, or upon which withholding tax would, but for paragraph 128B(3)(ga),(jb) or (m), section 128F, section 128FA or section 128GB, be payable, is not assessable income and is not exempt income of a person.

Dividend and interest income derived by the Fund would be subject to withholding tax under subsections 128B(1) and 128B(2) of the ITAA 1936 respectively, but for the operation of the withholding tax exemption under paragraph 128B(3)(jb) of the ITAA 1936. As paragraph 128B(3)(jb) of the ITAA 1936 is specifically referred to in section 128D of the ITAA 1936 any interest, dividend or non-share dividend income derived by the Fund will be not assessable and not exempt income under section 128D of the ITAA 1936.