1 Is the Fund excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from its investments listed in Appendix 1 in accordance with paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?
2 Yes. This ruling applies for the following period : 1 January 20XX to 31 December 20XX The scheme commenced on: 1 January 20XX
The Fund was established by legislation in a foreign country. The object of the Fund is to provide retirement and disability benefits. The Fund does not operate for any purpose other than providing retirement and disability benefits to members and their beneficiaries. The Fund is administered by a Board in accordance with the rules of the Fund. The Board is made up of persons none of whom are Australian residents. The Fund is an indefinitely continuing fund and was established and is maintained only to provide benefits for individuals who are not Australian residents. The Fund's central management and control is carried on outside of Australia by entitles, none of whom are Australian residents. Members of the Fund make contributions to the Fund. Contributions are used to pay pension and retirement benefits. The Fund does not provide benefits as a result of events other than old age retirement, disability, or death. The Fund's Australian investments The Fund holds investments in Australia. In respect of each of the Australian entities to which the Fund has invested:
• the Fund holds less than 10% of the total participation interests in each entity and has never held more than a 10% participation interest • the Fund will hold less than 10% of the total participation interests in each entity in the circumstances detailed in paragraph 128B(3CC)(b) of the Income Tax Assessment Act 1936 ( ITAA 1936) • 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 investments • neither the Fund, nor any related party of the Fund, holds any right to appoint a person to a board, committee, or similar, either directly or indirectly, of any of the Australian investments • neither the Fund, nor any related party, holds the right to representation on any investor representative or advisory committee (or similar) of any of the Australian investments • neither the Fund, nor any related party, has the ability to direct or influence the operation of any of the Australian investments outside of the ordinary rights conferred by the equity interest held
• the Fund has not entered into or received any side letters, arrangements, or agreements, and • the Fund does not hold any veto rights on security holder votes. Additional facts The Fund is exempt from taxation in the jurisdiction it was established. 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 income of the Fund is non-assessable non-exempt income of the Fund because of either: • Subdivision 880-C of the ITAA 1997, or • Division 880 of the Income Tax (Transitional Provisions) Act 1997 .
Income Tax Assessment Act 1936 section 6(1) Income Tax Assessment Act 1936 section 128B Income Tax Assessment Act 1936 section 128B(3)(jb) Income Tax Assessment Act 1936 section 128B(3CA) Income Tax Assessment Act 1936 section 128B(3CB) Income Tax Assessment Act 1936 section 128B(3CC) Income Tax Assessment Act 1936 section 128B(3CD) Income Tax Assessment Act 1936 section 128B(3CE) Income Tax Assessment Act 1936 section 128D Income Tax Assessment Act 1997 section 118-520 Income Tax Assessment Act 1997 section 995-1
The Fund is excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from its investments listed in Appendix 1 in accordance with 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 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 Fund is not a resident of Australia. 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 was established by legislation, which has no provision that provides for the Fund to end. The Fund will continue to operate in accordance with its rules and relevant legislation in the jurisdiction it was established for an indefinite period of time. 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 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). The Fund was established to provide retirement benefits to members of the Fund on the satisfaction of the Fund's requirements. Members earn eligibility to retire based on their age and years of pension service. The Fund also provides disability benefits, if a member is injured while performing job duties or on an approved leave of absence for personal medical reasons, and survivor benefits, being where a member dies before retirement and has a spouse and/or child. Where a member terminates their employment before reaching the eligible retirement age, they are able to receive a refund of their contributions but they forfeit their rights to any benefits under the plan.
Therefore, it can be concluded that the sole purpose of the Fund is to provide retirement benefits or benefits in other allowable contemplated contingencies and, as such, will satisfy this requirement. Established in a foreign country The Fund was established in a foreign country. 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 in a foreign country to provide retirement and disability benefits for individuals who are employed in the foreign country and who are not Australian residents. 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 in respect of the central management and control ('CM&C') of a superannuation fund:
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 CM&C of the Fund is carried on outside of Australia by the Board. The Fund has also advised that its CM&C is carried on outside of Australia by entities none of whom are Australian residents. Based on the above, it is reasonable to conclude that the CM&C of the Fund occurs in a foreign country by entities that are not Australian residents. Therefore, the Fund satisfies this requirement. Subsection 118-520(2)
The Fund has advised that it has not and cannot deduct amounts under either the ITAA 1997 or the ITAA 1936 for amounts paid to it, and in addition 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 on section 118-520 of the ITAA 1997 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. Sub paragraph 128B(3)(jb)(ii) of the ITAA 1936 Paragraph 128B(3)(jb) of the ITAA 1936 will only apply to interest, or to dividends and non-share dividends paid by Australian resident companies. The Fund has provided a list of its Australian Investments. This list identifies that the Fund's Australian investments are in Australian publicly listed entities and Government bonds. Therefore, the Fund's income consists of dividends and interest. Therefore, the Fund will satisfy this requirement. The Fund is exempt from income tax in the country in which the non-resident resides
The Fund is exempt from taxation in accordance with the income tax legislation in the country in which the Fund resides. 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 Fund holds less than 10% of the total participation interests in each of the Australian investments. Additionally, the Fund would hold less than 10% of the total participation interests in each Australian investment in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936. Therefore, the Fund satisfies the 'portfolio interest test' in respect of its current Australian 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 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 of this Ruling:
• 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 investments • 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 investments • neither the Fund, nor any related party, holds the right to representation on any investor representative or advisory committee (or similar) of the Australian investments • neither the Fund, nor any related party, has the ability to direct or influence the operation of the Australian investments 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 investment • the Fund has not entered into or received any side letters, arrangements or agreements, and • the Fund does not hold any veto rights on security holder votes. Based on the above, the Fund does not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936.
Otherwise non-assessable non-exempt The Fund has advised that 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 . 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 withholding tax in relation to interest and dividend income derived from its investments listed in Appendix 1 of this Ruling.