Issue
Does subsection 840-805(4) of the Income Tax Assessment Act 1997 (ITAA 1997) apply to a foreign superannuation fund that holds an indirect interest in a MIT?
Decision
No. Subsection 840-805(4) of the ITAA 1997 does not apply to a foreign superannuation fund that holds an indirect interest in a MIT because it is a beneficiary in the capacity of a trustee of another trust and paragraph 840-805(4)(c) of the ITAA 1997 is therefore not satisfied.
Facts
A foreign fund has been established for the sole purpose of maintaining a genuine superannuation fund for the benefit of non-residents of Australia.
The foreign fund is a superannuation fund as defined in section 995-1 of the ITAA 1997. Under that section the term superannuation fund is defined as having the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 meaning for present purposes a fund that is: • an indefinitely continuing fund; and • a provident, benefit, superannuation or retirement fund.
The fund is properly characterised as a trust under Australian law.
Monies of the foreign fund are pooled together with those of other funds in a foreign pooled investment fund. The pooled investment fund is also properly characterised as a trust under Australian law with the interest of the foreign fund in the pooled investment fund to be characterised as that of a beneficiary in a trust.
The pooled investment fund invests in various Australian trusts that are MITs within the meaning of section 12-400 of Schedule 1 to Taxation Administration Act 1953 (TAA 1953).
The trustee of the MIT makes a fund payment (as defined in subsection 12-405(1) of Schedule 1 to the TAA 1953) to the pooled investment fund and, in turn, the payment flows to the foreign superannuation fund.
At the time the fund payment was made, the foreign superannuation fund is presently entitled to a share of the income under the terms of the pooled investment fund.
Reasons for Decision
Where subsection 840-805(2), (3) or (4) of the ITAA 1997 applies to an entity, subsection 840-805(1) of the ITAA 1997 makes the entity liable to MIT withholding tax on the amount identified in the relevant subsection. Broadly speaking, subsection 840-805(2) of the ITAA 1997 applies where the entity receives a fund payment from a MIT, subsection 840-805(3) of the ITAA 1997 applies where the entity receives an amount attributable to a fund payment from a custodian, and subsection 840-805(4) of the ITAA 1997 applies where a beneficiary of a trust not itself acting in a trustee capacity is presently entitled to an amount that is attributable to a fund payment.
Subsection 840-805(4) of the ITAA 1997 provides as follows: This subsection applies to you if: (a) you are a beneficiary of a trust (that is not a managed investment trust or a custodian) and are presently entitled to a share of the income or capital of the trust; and (b) all or part of that share (also the fund payment part) is reasonably attributable to a payment that is a fund payment in relation to an income year made by a trust that is a managed investment trust in relation to that year; and (c) you are not, in respect of that share, a beneficiary in the capacity of a trustee of another trust; and (d) you are a foreign resident at the time (the entitlement time) when you become presently entitled.
Paragraph (a) is satisfied because the foreign superannuation fund is a beneficiary of the pooled investment fund and is paid a share of the income of that fund.
Paragraph (b) is satisfied because the distribution is reasonably attributable to a fund payment made by a trust that is a MIT.
Paragraph (c) is not satisfied because the foreign superannuation fund is a beneficiary in the capacity of a trustee of another trust in relation to the fund payment.
Paragraph (d) is satisfied because the foreign superannuation fund was a foreign resident at the time it was paid the amount.
As paragraph (c) is not satisfied, subsection 840-805(4) cannot apply to the foreign superannuation fund.