Issue
Is the non-resident entity an eligible non-resident non-complying superannuation fund under subsection 27A(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
No. The non-resident entity is not an eligible non-resident non-complying superannuation fund under subsection 27A(1) as it is not a superannuation fund under subsection 6(1) of the ITAA 1936.
Facts
The entity did not elect to be regulated under the Superannuation Industry (Supervision) Act 1993 (SISA). The entity is not a complying superannuation fund.
The entity accepts contributions from the member and the member's employer. Contributions are invested and may be used to buy a home, pay insurance premiums, retirement, medical insurance, contingency purposes, educational expenses and other approved investments.
A member may obtain benefits from the entity once they have reached age 55, regardless of whether they have retired or not, provided that a certain minimum amount has been set aside.
Reasons for Decision
Subsection 27A(1) of the ITAA 1936 defines an eligible non-resident non-complying superannuation fund as: 'means a non-resident superannuation fund that: (a) is a continuously non-complying superannuation fund (as defined in subsection 267(1)); or (b) is a non-complying superannuation fund that ceased, or last ceased, to be a complying superannuation fund on or after 1 July 1995'.
To establish whether the non-resident entity is a non-resident superannuation fund that is a non-complying superannuation fund or a continuously non-complying superannuation fund it must firstly be ascertained whether the non-resident entity is a superannuation fund.
A 'superannuation fund' is defined in subsection 6(1) of the ITAA 1936 to be: '(a) a scheme for the payment of superannuation benefits upon retirement or death; or (b) a superannuation fund within the definition of "superannuation fund" in section 10 of the Superannuation Industry (Supervision) Act 1993 ;'
In respect of paragraph (a) the scheme was not set up exclusively for the payment of superannuation benefits upon retirement or death.
In respect of paragraph (b), it is necessary to examine the meaning of the phrase 'provident, benefit, superannuation or retirement fund' as stated in the definition of 'superannuation fund' under the SISA.
There is no definition for the phrase 'provident, benefit, superannuation or retirement fund' in either the ITAA 1936 or the SISA. However, the phrase 'provident, benefit and superannuation fund established for the benefit of employees' was considered by Kitto J in Mahony v. FCT (1967) 14 ATD 519 (Mahony's Case). Kitto J referred to each of the 3 terms separately and said: '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....All that need to be recognised is that just as "provident" and "superannuation" both referred to the provision of a particular kind of benefit.... so "benefit" must have meant a benefit, not in the general sense, but characterised by some specific future purpose.'
Kitto J in Mahony's case referred to 'superannuation' as the making of provision for financial support for an employee, or for the employee's estate or dependants, to arise on the employee's retirement, death or other cessation of employment (eg. termination or resignation).'
In Scott v FCT (No.2) (1966) 14 ATD 333, (1966) 10 AITR 290 ( Scott's Case ), Windeyer J said (at ATD 351; AITR 312): '... 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.'
The entity is not exclusively a provident, benefit or superannuation fund because it does not provide benefits for the specific future purpose of the individual's retirement ( Mahony's Case ). Members can obtain benefits for other purposes, such as private health cover and education. The entity as such, is not a bona fide superannuation fund because its sole purpose is not to provide monetary benefits upon retirement age ( Scott's Case ). Members can withdraw their savings before reaching retirement age provided a minimum sum has been set aside.
Therefore, the entity has not met the definition of a superannuation fund under subsection 6(1) of the ITAA 1936. As the entity is not a superannuation fund, it cannot meet the definition of an eligible non-resident non-complying superannuation fund under subsection 27A(1) of the ITAA 1936.