Is the Trust excluded from liability to withholding tax on dividend and non-share dividend income derived from its Australian investments (as listed in the relevant facts and circumstances of this Ruling) in accordance with paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Yes This ruling applies for the following period : 1 January 2019 to 30 June 2020 The scheme commenced on: 1 January 2019
1. The Trust is a Group Trust created in order to provide for the collective investment and reinvestment of certain tax-exempt benefit plans that become participants of the Trust. 2. The Fund is a resident of a foreign country. 3. Each Participating Plan in the Fund is a qualified investor under the Declaration of Trust. 4. Individual members in the Participating Plans contribute directly to those Participating Plans first and then the Participating Plans acquire units of an index pool where each unit represents an undivided proportionate interest in all assets and liabilities of that fund. 5. The Participating Plans pay out member benefits and refunds to individual members. 6. The Participating Plans do not provide benefits as a result of events other than old age, retirement, disability or death. The Fund's current Australian investments 7. The Fund holds Australian equity investments upon which it derives dividend and non-share dividend income. 8. Throughout the Ruling period, the Fund's equity investments have the following characteristics:
• All investments in Australia are listed on the ASX with a total participation interest in respect of each investment being below 10%. • Neither the Fund nor any related party of the Fund has any involvement in the day to day management of the business of any of the Australian companies or trusts. • The Fund has no right to appoint a director to the Board of Directors of the Australian company or equivalent role in a trust. • The Fund has no right to representation on any investor representative or advisory committee (or similar) of the Australian company, or equivalent role in a trust. • The Fund has no ability to direct or influence the operation of the Australian company or trust outside of the ordinary rights conferred by the equity interest held. • The Fund only holds rights to vote in proportion to its equity interest in each Australian company or trust. Other Relevant Facts 9. The Fund was established, and is maintained, to provide benefits for individuals who are not Australian residents. 10. The Fund is not a resident of Australia for tax purposes.
11. The Fund will receive interest income along with dividend and non-share dividend income from companies who are residents of Australia for tax purposes. 12. The Fund is generally exempt from taxation in the foreign country in which it resides. 13. No contributions to the Fund are capable of being claimed as a tax offset or as a deduction under either the Income Tax Assessment Act 1997 (ITAA 1997) or the ITAA 1936. 14. Income of the Fund is not 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.
Income Tax Assessment Act 1936 Paragraph 128B(3)(jb) Income Tax Assessment Act 1936 Subsection 128B(3CA) Income Tax Assessment Act 1936 Subsection 128B(3CC) Income Tax Assessment Act 1936 Subsection 128B(3CD) Income Tax Assessment Act 1997 Section 118-520 Income Tax Assessment Act 1997 Subparagraph 118-520(1)(a)(ii) Income Tax Assessment Act 1997 Subsection 118-520(2) Income Tax Assessment Act 1997 Subdivision 880-C Income Tax (Transitional Provisions) Act 1997 Division 880
Question Is the Trust excluded from liability to withholding tax on dividend and non-share dividend income derived from its Australian investments (as listed in the relevant facts and circumstances of this Ruling) in accordance with paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)? Summary The Fund is excluded from liability to withholding tax on its dividend and non-share dividend income derived in respect of its Australian investments (as listed in the relevant facts and circumstances of this Ruling) under 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 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. The Commissioner has determined from the facts and circumstances that the Fund is not a resident of Australia. The Fund is a superannuation fund for foreign residents The term 'superannuation fund for foreign residents' is defined in section 118-520 of the ITAA 1997 which 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 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 term 'fund' is not defined in either the ITAA 1997 or the ITAA 1936. Therefore, it should be given its ordinary meaning subject to the context in which it appears and having regard to any relevant case law authorities. The Australian Oxford Dictionary, 2004, Oxford University Press, Melbourne defines the term 'fund' as; 1: a permanent stock of something ready to be drawn upon... 2: a stock of money, especially one set apart for a purpose. In Scott v. FC of T (No 2) (1966) 14 ATD 333; (1966) 10 AITR 290 (Scott), Windeyer J expressed the view that 'fund' in the context of 'superannuation fund' ordinarily meant 'money (or investments) set aside and invested, the surplus income therefrom being capitalised'. Windeyer J's views in Scott were cited with approval by Hill J in Walstern Pty Ltd v. Commissioner of Taxation (2003) 138 FCR 1; 2003 ATC 5076; (2003) 54 ATR 423 who stated that 'for present purposes, the point is the need for "money" or "other property" to constitute a fund'.
In this case, individual members in the Participating Plans contribute directly to those Participating Plans first and then the Participating Plans acquire units of the Fund where each unit represents an undivided proportionate interest in all assets and liabilities of that fund. The Fund also earns income from the investment of the Fund's monies. As such, the Fund meets the requirements of being a 'fund'. The governing documents provide no indication that there is an intention for the Fund to end at a definite point in time. Therefore, it is accepted that the Fund will continue to operate for an indefinite period. 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) refers to these authorities to provide 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 extract 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). In this case, the primary objective of the Fund is to provide for the members of the Participating Plans pensions on their retirement or for their families on death before or after retirement. The Participating Plans pay out member benefits to individual members. Furthermore, the Fund does not provide benefits as a result of events other than old age retirement, disability or death. The Commissioner accepts these benefits align with the sole purpose of providing retirement benefits or benefits in other allowable contemplated contingencies. Therefore, the Fund satisfies this requirement. Established in a foreign country The Fund was established in a foreign country. Therefore, it satisfies this requirement. Was established and maintained only to provide benefits for individuals who are not Australian residents
The Fund was established to invest the contributions of the Participating Plans to fund the retirement of the members of those Participating Plans. The Participating Plans and their members reside in the foreign country. It is considered that the possibility of a very small number of members being returned residents or becoming Australian residents 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 will satisfy 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 office of the Fund is in the foreign country where decisions as to whether to buy or sell Australian investments are made in accordance with the investment objectives outlined by the Fund. Therefore, the Fund satisfies this requirement.
Subsection 118-520(2) A fund is not a superannuation fund for foreign residents if: an amount paid to the fund or set aside for the fund has been or can be deducted under the Act; or a tax offset has been allowed or is allowable for such an amount 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. Consequently, based on the statement provided by the applicant, this requirement is satisfied. 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. 2. The Fund is exempt from income tax in the country in which the non-resident resides The Fund is an exempt Fund in the foreign country in which it is resident. Therefore, the Fund and Participating Plans are generally exempt from taxation in the foreign country. 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: i. The Fund must satisfy the 'portfolio interest test' in relation to the test entity (subsection 128B(3CC) of the ITAA 1936) ii. The Fund must satisfy the 'influence test' (subsection 128B(3CD) of the ITAA 1936) in relation to the test entity, and iii. The income cannot otherwise 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. 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 Australian company or trust it currently invests in. Further, it would hold less 10% of the total participation interests in each Australian company or trust 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 (as listed in 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 Australian investments listed in Appendix 1 of the relevant facts and circumstances to this Ruling:
Neither the Fund, nor any related party, has involvement in the day to day management of the business of any of the Australian companies or trusts. Neither the Fund, nor any related party, has the right to appoint a director to the Board of Directors of the Australian company or equivalent role in a trust. 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. Neither the Fund, nor any related party, has the ability to direct or influence the operation of the Australian company, or trust outside of the ordinary rights conferred by the equity interest held. The Fund only holds rights to vote in proportion to its equity interest in each Australian company or trust. 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 its dividend and non-share dividend income derived from its current Australian investments (as listed in Appendix 1 to the relevant facts and circumstances of this Ruling).