ATO Interpretative Decision
ATO ID 2009/77
Income Tax
Dividends: non-share dividends and interest - superannuation fund for foreign residents - withholding taxFOI status: may be released
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Are dividends, non-share dividends and interest paid to the taxpayer, the trustee of a superannuation fund for foreign residents, income to which paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936) applies?
Decision
Yes. The dividend, non-share dividend and interest income derived by the taxpayer in its capacity as the trustee of a superannuation fund for foreign residents is income to which paragraph 128B(3)(jb) of the ITAA 1936 applies.
Facts
The taxpayer is a 'non-resident' as defined in subsection 6(1) of the ITAA 1936.
The taxpayer is the trustee of a superannuation fund (the fund).
The fund was established in the taxpayer's country of residence and is a superannuation fund for foreign residents as defined in section 118-520 of the Income Tax Assessment Act 1997 (ITAA 1997).
In its capacity as trustee of the fund, the taxpayer received income in the 2007-08 income year that consisted of dividends and non-share dividends paid by Australian resident companies and interest.
Within the last three years, the taxing authority in the country of residence of the taxpayer has certified that the fund is exempt from income tax in that country.
Reasons for Decision
Paragraph 128B(3)(jb) of the ITAA 1936 excludes certain income from being subject to withholding tax where that income:
- (i)
- is derived by a non-resident that is a superannuation fund for foreign residents; and
- (ii)
- consists of interest, or consists or dividends or non-share dividends paid by a company that is a resident; and
- (iii)
- is exempt from income tax in the country in which the non-resident resides.
Non-resident
The definition of the term 'non-resident' in subsection 6(1) of the ITAA 1936 states that, unless contrary intention appears, a non-resident is a 'person who is not a resident of Australia'. The definition of 'person' in subsection 6(1) provides that the term 'person' includes a company.
Subsection 128A(10) of the ITAA 1936 provides that, for the purposes of Division 11A of the ITAA 1936, the trustee of a provident, benefit, superannuation or retirement fund is a non-resident at a particular time if, and only if, the fund is a foreign superannuation fund at that time.
Applying the definition of 'non-resident' as stated in subsection 6(1) of the ITAA 1936 to the phrase 'a non-resident that is a superannuation fund for foreign residents' in subparagraph 128B(3)(jb)(i) of the ITAA 1936 means that the subparagraph can not be satisfied where the superannuation fund for foreign residents is a trust. This is because the trust is not a 'person' as defined. In such circumstances, subparagraph 128B(3)(jb) of the ITAA 1936 will not operate to exclude the relevant types of income of such a fund from being subject to withholding tax.
This result is inconsistent with paragraph 128B(3)(jb) of the ITAA 1936 in a withholding tax context achieving a similar purpose to that of former paragraph 23(jb) of the ITAA 1936. Before being rewritten into paragraph 128B(3)(jb), former paragraph 23(jb) exempted interest and dividends of foreign superannuation funds. (See paragraph 2.110 of the Explanatory Memorandum to the Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006).
Furthermore, the phrase 'a non-resident that is a superannuation fund for foreign residents' is inconsistent with subsection 128A(10) of the ITAA 1936 for present purposes treating the trustee of a superannuation fund as a non-resident.
Foreign superannuation fund
The term 'foreign superannuation fund' is defined in subsection 995-1(1) of the ITAA 1997 as being a superannuation fund that is not an Australian superannuation fund. Paragraph 295-95(2)(b) of the ITAA 1997 provides that for a superannuation fund to be an 'Australian superannuation fund' at a particular time, the fund must have its central management and control ordinarily in Australia.
Subparagraph 118-520(1)(a)(ii) and paragraph 118-520(1)(d) of the ITAA 1997 provides for present purposes that a fund is a 'superannuation fund for foreign residents' at a particular time if the fund is a superannuation fund and its central management and control is carried on outside Australia by entities, none of whom is an Australian resident. Accordingly, the fund cannot be an Australian superannuation fund.
Subsection 128A(10) of the ITAA 1936 applies to the taxpayer because the fund is a 'superannuation fund for foreign residents' and is also a 'foreign superannuation fund'.
The application of paragraph 128B(3)(jb) of the ITAA 1936
Given that subsection 128A(10) of the ITAA 1936 treats the trustee to be the non-resident, the Commissioner considers that, where a superannuation fund for foreign residents is a trust, the phrase 'a non-resident that is a superannuation fund for foreign residents' is for the purposes of subparagraph 128B(3)(jb)(i) of the ITAA 1936 a reference to a non-resident that is the person acting in its capacity as the trustee of a superannuation fund for foreign residents.
Accordingly, the Commissioner accepts that the taxpayer is 'a non-resident that is a superannuation fund for foreign residents' for the purposes subparagraph 128B(3)(jb)(i) of the ITAA 1936.
As the dividend, non-share dividend and interest income was received by the taxpayer in its capacity as the trustee of the fund, the Commissioner accepts that, for the purposes of subparagraph 128B(3)(jb)(i) of the ITAA 1936 and for the reasons stated above, the income of the fund is derived by a non-resident that is a superannuation fund for foreign residents.
As the income derived is dividends and non-share dividends paid by companies that are Australian residents and interest, it is income of the type specified in subparagraph 128B(3)(jb)(ii) of the ITAA 1936.
Given that the taxing authority in the country of residence of the taxpayer has provided relevant certification of the fund being exempt in its country of residence, the Commissioner accepts that, for the purposes of subparagraph 128B(3)(jb)(iii) of the ITAA 1936, the income of the fund that satisfies subparagraphs 128B(3)(jb)(i) and 128B(3)(jb)(ii) of the ITAA 1936 is exempt from income tax in the country in which the taxpayer resides.
Therefore, for the reasons stated above, the dividend and interest income of the fund is income to which paragraph 128B(3)(jb) of the ITAA 1936 applies.
Year of income: Year ended 30 June 2008
Legislative References:
Income Tax Assessment Act 1936
subsection 6(1)
paragraph 23(jb) (repealed as from 14 September 2006)
subsection 128A(10)
section 128B
paragraph 128B(3)(jb)
subparagraph 128B(3)(jb)(i)
subparagraph 128B(3)(jb)(ii)
subparagraph 128B(3)(jb)(iii)
section 118-520
subparagraph 118-520(1)(a)(ii)
paragraph 118-520(1)(d)
paragraph 295-95(2)(b)
subsection 995-1(1) Related ATO Interpretative Decisions
ATO ID 2001/320
ATO ID 2001/334
Other References:
Explanatory Memorandum to Tax Laws Amendment (Repeal of Inoperative Provisions) Bill 2006
Keywords
Withholding tax exemptions
Dividend income
Non resident dividend withholding tax
Interest income
Non resident interest withholding tax
Superannuation funds
Non resident superannuation funds
ISSN: 1445-2782