1 Is the Fund excluded from liability to withholding tax on dividend and interest income derived from the investments listed in Appendix 1 to 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. Question 2 Is the interest and dividend income derived by the Fund from the investments listed in Appendix 1 to the relevant facts and circumstances of this Ruling not assessable and not exempt income under section 128D of the ITAA 1936? Answer Yes. This ruling applies for the following periods : Year ended 30 June 20XX Year ended 30 June 20XX Year ended 30 June 20XX Year ended 30 June 20XX Year ended 30 June 20XX The scheme commenced on: 1 July 20XX
The Fund The Fund is a trust, established in the Foreign Country. There are various retirement plans serviced by the Fund ('the Plans'). The Plans have a legal, contractual relationship with the Fund. The Plans outline the benefits, purpose and principles of the Fund. Further, the Plans govern who was eligible to participate, how and when they can benefit and the various investment options. The Plans are essentially legal documents and are not separately incorporated vehicles. The Fund may be terminated at any time, however, the Company fully intends to continue the Plans indefinitely. Administration and Governance of the Fund The Fund is a legal entity in which the members of the Plans have a beneficial interest to the income of the Fund, calculated in accordance with the plan they are party to. Multiple plans are serviced by the Fund, meaning the income of the Fund is first allocated to the various Plans, which then calculate and determine the benefits their respective members are entitled to.
The Trustee has discretionary powers to register any securities held by it in its own name or in the name of a nominee, to hold any securities in bearer form and to deposit any securities or other property in a depository or a clearing corporation. The Trustee calculates the benefits (in accordance with each of the Plans) and distributes benefits to the relevant members via the Plans, despite the members not holding units/interests in the Fund. The assets of the Fund are held, administered, invested and managed in all respects as a single trust fund even though portions of such assets may be attributable to different related companies and the employees of each, or to separate plans maintained by the same related company or different related companies. The Fund has investment accounts, which are groups of assets held directly by the Fund, classified to a particular account - these are not separate legal entities, but methods through which funds can be organised. The investment accounts may be managed by different investment managers.
Committee A is the fiduciary of the investments of the Plans, and is responsible for the investment, custody, control, and management of (including the power to acquire and dispose of) the Fund's assets. The central management and control of the Fund is carried on by Committee A, which is located outside Australia and none of the members of which are Australian residents. The Plans have each designated Committee B as the named fiduciary and have vested in Committee B the authority to control and manage the operation of that Plan. The duties of Committee B include withdrawal or transfer of funds to facilitate the payment of benefits to Members. The assets of the Fund cannot be used for, or diverted to, purposes other than for the exclusive benefit of the members of the Plans. The Plans The primary purpose of the Plans is to provide eligible members with periodic income after retirement. Benefits provided by the Plans include normal retirement, late retirement, early retirement, disability, termination and survivor benefits. The plans were open only to eligible employees of the Company and/or related companies. The Plans are all closed to new members. Australian Investments
The Fund derives Australian sourced dividend and interest income from the investments listed in Appendix 1 of this Ruling ('the Investments'). The entities listed in Appendix 1 of this Ruling are the Test Entities. The Fund legally and beneficially owns the Investments. The Investments all have the following characteristics: a. All are listed on the Australian Securities Exchange ('ASX'). b. The Fund holds less than 10% of the total participation interests in the Test Entities. c. The Fund would hold less than 10% of the total participation interests in each of the Test Entities 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 Test Entities. e. Neither the Fund, nor any related party of the Fund, has the right to appoint a director to the Board of Directors of any of the Australian companies or to an equivalent role in any of the Test Entities.
f. Neither the Fund, nor any related party, holds the right to representation on any investor representative or advisory committee (or similar) for any of the Australian companies, or a similar role for any of the Test Entities. g. Neither the Fund, nor any related party, has the ability to direct or influence the operation of any of the Test Entities 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 of the Test Entities, and does not hold any veto rights on security holder votes. The Fund's participation interest in the Test Entities has always been less than 10%. The Fund has not entered into or received any side letters, arrangements or agreements in respect of the Investments. Tax Status The Fund is a resident of and is exempt from tax in the Foreign Country. The Fund's central management and control is carried on outside Australia by persons none of whom is an Australian resident. An amount paid to the Fund, or set aside for it: has not been or cannot be, deducted under the ITAA 1997 or ITAA 1936, and
has not been allowed or is not allowable as a tax offset to the Fund. The income of the Fund is not non-assessable non-exempt income of the Fund 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 section 128D
Question 1 Is the Fund excluded from liability to withholding tax on dividend and interest income derived from the investments listed in Appendix 1 to the relevant facts and circumstances of this Ruling, in accordance with paragraph 128B(3)(jb) of the ITAA 1936? Summary The Fund is excluded from liability to withhold tax on interest and dividend income derived from its Australian Investments (as listed in Appendix 1 of the relevant facts and circumstances section of this ruling) in accordance with paragraph 128B(3)(jb) of the ITAA 1936. Detailed reasoning Section 128B of the ITAA 1936 imposes liability to withholding tax on income derived by a non-resident that consists of dividend income (subsection 128B(1) of the ITAA 1936), interest income (subsection 128B(2) of the ITAA 1936) and other income prescribed in that section. Subsection 128B(3) of the ITAA 1936 notes that section 128B of the ITAA 1936 will not apply to prescribed categories of income. Relevantly, paragraph 128B(3)(jb) of the ITAA 1936 includes: (jb) income that: (i) is derived by a non-resident that is a superannuation fund for foreign residents; and
(ii) consists of interest, or consists of 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; Subitem 3(1) of Part 2 of Schedule 3 of Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 ('2019 Act') provides (subject to subitems (2) and (3)) that for income derived from 1 July 2019, the extra requirements in subsection 128B(3CA) of the ITAA 1936 must also be met. These requirements are considered below. Income that is derived For paragraph 128B(3)(jb) of the ITAA 1936 to apply, the superannuation fund for foreign residents must derive the relevant income. The Fund, through the Trustee, is the entity which holds the relevant investments and is paid the dividend and interest income from the Australian resident. The Commissioner therefore accepts that the Fund derives the relevant income. Therefore, the Fund satisfies this requirement. A non-resident The Fund is a resident of the Foreign Country. The Commissioner is satisfied that the Fund is not a resident of Australia for tax purposes.
Therefore, the Fund satisfies this requirement. A superannuation fund for foreign residents The term 'superannuation fund for foreign residents' is a defined term in section 6 of the ITAA 1936 which states: superannuation fund for foreign residents has the meaning given by subsection 995-1(1) of the ITAA 1997. Subsection 995-1(1) of the ITAA 1997 sets out that: superannuation fund for foreign residentshas the meaning given by section 118-520. Section 118-520 of the ITAA 1997 states the following: (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; (b) a tax offset has been allowed or is allowable for such an amount. These requirements are considered below. The fund is an indefinitely continuing fund The legislation provides no guidance on the meaning of 'indefinitely continuing'. It is not a technical legal expression, and the ordinary meanings of 'indefinitely' and 'continuing' involve little ambiguity or controversy. The Macquarie Dictionary , [Online], viewed 2 May 2024, www.macquariedictionary.com.au defines 'indefinitely' and 'continuing' as follows: Indefinite: 1. not definite; without fixed or specified limit; unlimited: an indefinite number. 2. not clearly defined or determined; not precise. indefinitely, adverb Continue: (verb (Continued, continuing)) 1. to go forwards or onwards in any course or action; keep on. 2. to go on after suspension or interruption. 3. to last or endure. 4. to remain in a place; abide; stay. 5. to remain in a particular state or capacity
The Fund may be terminated at any time, however, the Company fully intends to continue the Plans indefinitely. Therefore, the Fund is indefinitely continuing and satisfies this requirement. The fund is 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). Having regard to the terms of the deed of the Plan, it is considered that the Plan is a 'provident, benefit, superannuation or retirement fund' as that phrase has been interpreted by the relevant authorities. The sole purpose of the Plan is the provision of benefits to, or in respect of, participating employees who: • cease their employment upon or after reaching retirement age (age 60) • cease their employment after the satisfaction of certain service requirements
• cease their employment because of death or total and permanent disability, or • reach age 70, whether or not they have ceased employment. Therefore, the Plan satisfies subparagraph (a)(ii) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997. The above commentary 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, serious illness or other cessation of employment). The Fund was established for the sole purpose of providing retirement benefits to members of the Plans. The circumstances in which members of the Plans can access their benefits are consistent with those listed above in ATO ID 2009/67. The Commissioner is satisfied that the Fund's sole purpose is to provide retirement benefits or benefits in other allowable contemplated contingencies and that the Fund is a 'provident, benefit, superannuation or retirement fund'. Therefore, the Fund satisfies this requirement. The fund was established in a foreign country
The Fund was established in the Foreign Country and therefore the Fund satisfies this requirement. The fund was established and maintained only to provide benefits for individuals who are not Australian residents The Plans were open only to eligible employees of the Company and/or related companies of the Company in the Foreign Country. While it is possible that Australian residents, having formerly worked in the Foreign Country for the Company, may obtain payment from the Fund, the fund was not established nor maintained in order to provide benefits to individuals who are Australian residents. Therefore, the Fund satisfies this requirement. The fund's central management and control is carried on outside Australia by entities none of whom is an Australian resident 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. Furthermore, paragraph 10 and 11 of the Taxation Ruling TR 2018/5 Income tax: Central Management and Control test of residency ('TR 2018/5') states: 10. Central management and control refers to the control and direction of a company's operations. It does not refer to a physical location in which the control and direction of a company is located and may ultimately be exercised in more than one location.
11. The key element in the control and direction of a company's operations is the making of high-level decisions that set the company's general policies and determine the direction of its operations and the type of transactions it will enter. The central management and control of the Fund is carried out by Committee A. No members of Committee A are Australian residents. Therefore, the Fund's central management and control is carried on outside Australia. Therefore, the Fund satisfies this requirement. No amount paid to the fund or set aside for the fund has been or can be deducted under the ITAA 1997 and no tax offset has been allowed or is allowable for such an amount No amount paid to or set aside for the Fund has been or can be deducted under the ITAA 1997. A tax offset has not been allowed nor would be allowable for any amount paid to or set aside for the Fund. Therefore, the Fund satisfies this requirement. 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 for the purposes of subparagraph 128B(3)(jb)(i) of the ITAA 1936.
Income that consists of interest, or consists of dividends or non-share dividends paid by a company that is a resident The relevant income derived by the Fund consists of interest, and dividends paid from Australian companies. As such, the requirement under subparagraph 128B(3)(jb)(ii) of the ITAA 1936 are met. Income that is exempt from income tax in the country in which the non-resident resides The Fund is exempt from income tax in the US. As such, the requirement under subparagraph 128B(3)(jb)(iii) of the ITAA 1936 will be met. 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 in subsection 128B(3CA) of the ITAA 1936 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. Subsection 128B(3CA) of the ITAA 1936 states: (3CA) Paragraph (3)(jb) applies to income derived by the superannuation fund mentioned in subparagraph (3)(jb)(i) only if:
(a) the superannuation fund satisfies the portfolio interest test in subsection (3CC) in relation to the entity mentioned in subsection (3CB) (the test entity ): (i) at the time the income was derived; and (ii) throughout any 12 month period that began no earlier than 24 months before that time and ended no later than that time; and (b) the superannuation fund does not, at the time the income was derived, have influence of a kind described in subsection (3CD) in relation to the test entity; and (c) the income is not non-assessable non-exempt income of the superannuation fund because of: (i) Subdivision 880-C of the Income Tax Assessment Act 1997 ; or (ii) Division 880 of the Income Tax (Transitional Provisions) Act 1997 . These requirements are considered below. 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 Test Entities are the entities listed in Appendix 1 of this Ruling. The Fund holds substantially less than 10% of the total participation interests in each of the Test Entities and has never held more than a 10% participation interest. Further, the Fund would hold less than 10% of the total participation interests in each of the Test Entities 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. 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 superannuation 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 superannuation 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 superannuation 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, assess 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 direction, instructions or wishes of the superannuation fund.
In respect of the Australian Investments listed in Appendix 1 of this Ruling and in consideration of the factors outlined in the facts and circumstances of this Ruling: a) The Fund is not able to determine the identity of any 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 Entities' operations, and b) There is no relevant decision-making person of the Test Entities who is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the direction, instructions or wishes of the Fund. The Commissioner therefore 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 from the Australian Investments listed in Appendix 1 of this Ruling 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 . Therefore, the Fund satisfies this requirement. Conclusion
Having regard to the requirements of paragraph 128B(3)(jb) of the ITAA 1936, the Fund is excluded from liability to withholding tax in relation to interest and dividend income derived from its Australian investments listed in Appendix 1 of this Ruling. Question 2 Is the interest and dividend income derived by the Fund from the investments listed in Appendix 1 to the relevant facts and circumstances of this Ruling not assessable and not exempt income of the fund under section 128D of the ITAA 1936? Summary Dividend and interest income derived by the Fund on its investments listed in Appendix 1 of this Ruling is not assessable and not exempt income. Detailed reasoning Section 128D states: Income other than income to which section 128B applies by virtue of subsection (2A), (2C) or (9C) of that section upon which withholding tax is payable, or upon which withholding tax would, but for paragraph 128B(3)(ga), (jb) or (m), section 128F, section 128FA or section 128GB, be payable, is not assessable income and is not exempt income of a person.
As stated in Question 1, paragraph 128B(3)(jb) of the ITAA 1936 applies to the interest and dividend income meaning that withholding tax is not payable on that income under Division 11A. Therefore, the dividend and interest income derived by the Fund on its investments listed in Appendix 1 of this Ruling will be considered not assessable and not exempt income under section 128D.