1 Is the Fund excluded from liability to withholding tax on its interest, dividend and non-share dividend income derived in respect of its current investments (listed in Appendix 1 to the relevant facts and circumstances of this Ruling) under paragraph 128B(3)(jb) of the ITAA 1936?
Yes. This ruling applies for the following period : 1 July 20xx to 30 June 20yy The scheme commenced on: 1 July 20xx
The Plan A fund has been established and shall be maintained for the purposes of the Plan under which all contributions and earnings thereon are held to make the payments specified in the Fund. The costs of administering the Fund, including costs of administering and investing the fund, are payable out of the fund. (The Fund) The Fund is governed by the Fund Rules. The Fund is a pension plan under Country X Law. The Fund's registered office is in Country X. The Fund's main purpose is to provide periodic pension payments to eligible employees of ForCo after retirement and until death in respect of their service as Members of the Fund. The Fund's eligible members also include employees of organisations affiliated with ForCo. The Fund is a single plan that consists of defined benefits. ForCo is the Fund's Administrator. ForCo, as the Administrator, enters into a Trustee Agreement with an Agency to manage the Fund. The Agency shall be responsible for the accounting of all contributions into and all payments out of the Fund as authorised by the Administrator.
The Administrator has entered into a Trustee Agreement with an Agency. This Trustee Agreement is a Trustee and Custodian Agreement (Agreement) with the Trustee to act as trustee and custodian over Fund assets. This Agreement benefits only its agreed parties and no third parties. The Trustee is to act on the Instructions of the Administrator. The Trustee is not the administrator of the Fund and is responsible only for accounting for the Fund. ForCo makes contributions to the Fund via the Trustee. At ForCo's discretion and subject to the provisions of Country X Law, any surplus determined by the Actuary, or a portion thereof, may be used to determine or to reduce ForCo's contributions. The Fund's members are residents of Country X and there are no eligible employees that are Australian tax residents. Benefits provided Except as expressly provided in the Fund, no Member may receive a refund of all or part of his benefit entitlement while remaining employed by ForCo.
Any new or continuing benefit payable from the Fund to a Member or other person entitled to a benefit under the Fund, notwithstanding any Fund provisions to the contrary, may be satisfied, in whole or in part, through the purchase of an annuity or annuities from an Insurer in respect of any Member. A Member may seek the payment of the lump sum Commuted Value of their pension if they terminate employment for any reason (including retirement) in certain circumstances and the benefit is less than z% in the year of termination. Subject to Country X law and Fund Rules, a Member who has terminated employment with ForCo and who has not been residing in Country X for at least y calendar years as determined in accordance with Country X law may elect to receive the payment of their benefits in the form of a lump sum. The amount of benefit settlement shall be the Actuarial Equivalent of the benefits remaining to be paid. The Fund provides benefits to members per the Plan rules as follows: a. Normal retirement pension: a defined benefit pension upon a member attaining the age of x, or the Normal Retirement Date.
b. Early Retirement pension: a defined benefit pension for a member that has attained the Earliest Retirement Age, with adjustments made to the amount depending on the Member's circumstances, including age and years of service. c. Temporary Retirement Income: a Member who retires on their Early Retirement Date, depending on their earnings and credited service, will receive this payment, although this payment is not available to those receiving a disability benefit under Country X social security. This payment shall continue to their death or Normal Retirement Date. d. Termination of employment (Normal Retirement Date): upon a Member's termination of employment with ForCo for any reason other than death or before attaining his Early Retirement Date shall receive: (a) an annual retirement income commencing on his Normal Retirement Date, determined using the Member's date of termination of employment as his Date of Determination (time at which the benefit is calculated); and (b) an amount equal to his excess contributions, if any, with Credited Interest.
e. Termination of employment (Early Retirement Date): Those whose employment is terminated and meet certain conditions may access a reduced benefit when they reach their Early Retirement Date. f. Disability retirement: Members who incur a disability may apply for the Disability Plan. A Disability Plan is an agreement between ForCo and an Insurer to provide disability income benefits to a Member during their employment. g. Death and survivor benefits payable to the Member's estate or dependents. A Member (including their spouse or dependent) may elect to have a life annuity in lieu of above, which is determined on an actuarial basis. A Member may be paid a lump sum, or have the Commuted Value of their benefits transferred into a retirement account, if they became a member less than two years prior to their date of retirement. If the Member became a member more than two years prior to retirement, these benefits may be transferred to another retirement account or to an Insurer to purchase a deferred annuity. Investment management
The Fund invests via the Trustee with the Investment Manager. The Global Custodian and Australian Sub-Custodian aid in the process of investing into Australian securities. The Trustee has no responsibility for the investment or reinvestment of the Fund, or for failure to reinvest the Fund, and shall have no responsibility for any investment decisions, which shall be the sole responsibility of ForCo unless otherwise delegated to an Investment Manager. The Trustee shall invest the Fund's principal and income without distinction between principal and income in such investments as may be directed by the Instructions. The Trustee shall ensure that the Fund shall always be kept separate and distinct from the Trustee's general assets, from Trustee's general assets, and from the general assets of any sub-custodian that is the Trustee's Affiliate. The Trustee's duties shall be limited to the Property held in the Fund, and the Trustee shall have no duties with respect to property held by other Fund trustees.
The Trustee may only make payments to the Fund's Participating Employers or pension funds pursuant to the Instructions, and when such payments are made, they no longer constitute part of the Fund. The Trustee shall credit the Fund with income and maturity proceeds on Securities or other Property on contractual payment date net of any taxes or upon actual receipt as agreed between ForCo and the Trustee. The Trustee shall be paid out of the Fund for its services, unless it is paid directly by ForCo or a Participating Employer (in which case, they will be reimbursed by the Fund). The Trustee may be removed as trustee with respect to the Fund by ForCo and a replacement trustee appointed. Australian investments The Fund has invested in Australian equity investments listed in Appendix 1. These equity investments all have the following characteristics: a. All investments are listed on the Australian Securities Exchange (ASX). b. The Fund holds less than 10% of the total participation interests in each Australian company, trust or real estate investment trust (REIT).
c. The Fund would hold less than 10% of the total participation interests in each Australian company, trust or REIT in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936. d. Neither the Fund, nor any related party of the Fund, has involvement in the day to day management of the business of any of the Australian companies, trusts or REITs. e. Neither the Fund, nor any related party of the Fund, has the right to appoint a director to the Board of Directors of the Australian company, or equivalent role in a trust or REIT. f. Neither the Fund, nor any related party, holds the right to representation on any investor representative or advisory committee (or similar) of the Australian company, or equivalent role in a trust or REIT. g. Neither the Fund, nor any related party, has the ability to direct or influence the operation of the Australian company, trust or REIT outside of the ordinary rights conferred by the equity interest held. h. The Fund only holds rights to vote in proportion to its equity interest in each Australian company, trust or REIT. Other relevant facts The Fund has not and cannot deduct amounts under either the
Income Tax Assessment Act 1997 (ITAA 1997) or the ITAA 1936 for amounts paid to it. The Fund has not been allowed a tax offset or a tax offset is not allowable for an amount that has been paid to it. The Fund submitted a certificate from the Country X Tax Authority which states that the Fund is exempt from taxation in Country X because it is a pension plan. The Country X Tax Authority has also provided certificate of residency such that the Fund is a resident of Country X. The Trustee is a resident of Country X. The Fund has provided a letter to the Commissioner which states that the Fund is an indefinitely continuing fund. ForCo expects to continue the Fund indefinitely, but nevertheless reserves the right to: a. amend the Fund from time to time; b. terminate the Fund in whole or in part; or c. merge or consolidate the Fund with any other pension plan; subject to the applicable provisions of any collective bargaining agreement to which ForCo is a party. Income of the Fund is not 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.
Income Tax Assessment Act 1936 paragraph 128B(3)(jb)
Question 1 Is the Fund excluded from liability to withholding tax on its interest, dividend and non-share dividend income derived in respect of its current investments (listed in Appendix 1 to the relevant facts and circumstances of this Ruling) under paragraph 128B(3)(jb) of the ITAA 1936? Summary The Fund is considered to be a superannuation fund for foreign residents and is excluded from withholding tax in relation to interest, dividend and non-share dividend income derived from its investments (listed in Appendix 1 to the relevant facts and circumstances of this Ruling) under paragraph 128B(3)(jb) or 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 exempt from income tax in the country in which the superannuation fund for foreign residents resides.
Further, from 1 July 2019, the extra requirements in subsection 128B(3CA) of the ITAA 1936 must also be met. The Fund is a non-resident The Commissioner has determined from the facts and circumstances that the Fund is not a resident of Australia. The Fund was established in Country X, and its management is completely based there. 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 has provided a letter to the Commissioner which states that the Fund is an indefinitely continuing fund. ForCo expects to continue the Fund indefinitely, but nevertheless reserves the right to: (a) amend the Fund from time to time; (b) terminate the Fund in whole or in part; or (c) merge or consolidate the Fund with any other pension plan; subject to the applicable provisions of any collective bargaining agreement to which the ForCo is a party. 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 establish 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). Benefits provided The Fund provides the following benefits to its members: a) Normal retirement pension b) Early Retirement c) Temporary Retirement Income d) Termination of employment (Normal Retirement Date) e) Termination of employment (Early Retirement Date) f) Disability retirement g) Death and survivor benefits. A Member may also in limited circumstances be paid a lump sum, or have the Commuted Value of their benefits transferred into a retirement account. This is typically if they became a member less than two years prior to their date of retirement. If the Member became a member more than two years prior to retirement, these benefits may be transferred to another retirement account. Based on the above assessment, the Fund does not provide benefits to members as a result of events other than retirement, disability or death.
As the Fund has the sole purpose of providing retirement benefits and other allowable contemplated contingencies, the Commissioner accepts the Fund is a 'provident, benefit, superannuation or retirement fund'. Therefore, the Fund satisfies this requirement. Established in a foreign country The Fund was established in Country X. 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 and is maintained in Country X for eligible employees of organisations affiliated with ForCo. The Fund operates to provide retirement benefits for its members in Country X. The Country X Tax Authority has also provided a certificate of residency such that the Fund is a resident of Country X. 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:
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. The Administrator, ForCo, exercises the CM&C of the Fund and is responsible for all investment decisions. The Administrator is not an Australian resident, and does not make any decisions with respect to the Fund in Australia. Therefore, the Fund satisfies this requirement. Subsection 118-520(2) The Fund has not and cannot deduct amounts under either the ITAA 1997 or the ITAA 1936 for amounts paid to it. The Fund has not been allowed a tax offset or a tax offset is not allowable for an amount that has been paid to it. Therefore, the Fund satisfies these requirements. Conclusion
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. The Fund is exempt from income tax in the country in which the non-resident resides The Country X Tax Authority has confirmed that the Fund is exempt from taxation in Country X as it is a pension plan. 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:
a. Subdivision 880-C of the ITAA 1997, or b. 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 portfolio test only applies to the Fund's Australian equity interests.
The Fund holds less than 10% of the total participation interests in each Australian company, trust or real estate investment trust (REIT) as outlined in Appendix 1. Further, the Fund holds less than 10% of the total participation interests in each Australian company, trust or REIT in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936. The Fund therefore satisfies the 'portfolio interest test' in respect of its current investments (listed in Appendix 1 to the relevant facts and circumstances of this Ruling). 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: (i) is directly or indirectly able to determine; or (ii) 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. 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 investment listed in Appendix 1 of the relevant facts and circumstances to this Ruling: a. Neither the Fund, nor any related party of the Fund, has involvement in the day to day management of the business of any of the Australian companies, trusts or REITs. b. Neither the Fund, nor any related party of the Fund, has the right to appoint a director to the Board of Directors of the Australian company or equivalent role in a trust or REIT. c. Neither the Fund, nor any related party, holds the right to representation on any investor representative or advisory committee (or similar) of the Australian company, or equivalent role in a trust or REIT.
d. Neither the Fund, nor any related party, has the ability to direct or influence the operation of the Australian company, trust or REIT outside of the ordinary rights conferred by the equity interest held. e. The Fund only holds rights to vote in proportion to its equity interest in each Australian company, trust or REIT. Based upon 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 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 . Conclusion The Fund is excluded from withholding tax in relation to interest, dividend and non-share dividend income derived from its current investments as listed in Appendix 1 to the relevant facts and circumstances of this Ruling.