1 Is the Fund excluded from liability to withholding tax on its interest, 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?
1 Yes This ruling applies for the following periods : 1 July 20xx to 30 June 20xx The scheme commenced on: 1 July 2020
1. The Fund was established in Country A (a foreign country). 2. The Fund is a resident of Country A. 3. The Fund is a registered pension scheme for tax purposes under the laws of Country A. 4. The moneys, investments and other property of the Fund shall constitute the Scheme Fund. 5. All powers are vested in the Trustee of the Fund. The overall management of the Fund is vested in the Trustee and can be exercised through the Committee of Management. 6. The Committee of Management by themselves or any nominee on their behalf have the power investment on behalf of the Fund. 7. The Fund has confirmed that its central management and control is carried on outside Australia by entities none of whom is an Australian resident. 8. The main purpose of the Fund is to provide pensions for members on retirement. 9. The Scheme contains provisions about admission of other employers and new members. 10. Both the member and the employer make contributions to the Fund. 11. In accordance with the provisions of the Rules, membership to the Fund gives an entitlement to benefits under:
a. Retirement pension b. Death benefits c. Disability benefits 12. There are provisions in the Rules dealing with assets transfer in and out. 13. The Trustee and the Guarantor may amend, wind up or terminate the Fund but no date has been set for the Fund to be terminated. 14. The Fund is exempt of tax in Country A by virtue of the relevant laws of Country A. 15. In respect to the Fund's direct Australian investments, the Fund: • does not hold any right to appoint a person to a board, committee or similar either directly or indirectly, • did not enter into or receive any side letters, arrangements or agreements, • does not hold any veto rights on security holder votes, and • does not hold any other influence potentially of a kind described in subsection 128B(3CD) of the ITAA 1936. Australian investments 16. The Australian equity investments have the following characteristics: • All investments are listed on the Australian Securities Exchange (ASX).
• The Fund holds less than 10% of the total equity interests on issue of each Australian company or trust • does not hold any right to appoint a person to a board, committee or similar either directly or indirectly, • did not enter into or receive any side letters, arrangements or agreements, • does not hold any veto rights on security holder votes, and • does not hold any other influence potentially of a kind described in subsection 128B(3CD) of the ITAA 1936. 17. The Australian debt investments have the following characteristics: • All investments are listed on the Australian Securities Exchange (ASX). • The investments are either corporate, securitised, index linked, and Government debt investments and treasuries from which it will ordinarily derive income in the form of interest. • The Fund holds less than 10% of the total interests on issue of each Australian debt issuer. • The Fund has no involvement in the day to day management of the business of any of the Australian debt issuers.
• The Fund has not acquired the right to appoint a director to the Board of Directors of any issuing debt issuer. • The Fund has not acquired the right to representation on any investor representative or advisory committees (or similar) of any issuing Australian debt issuer. • The Fund has no ability to direct or influence the operation of the Australian debt issuer outside of the ordinary right conferred by the debt interest held. • The Fund has no voting rights in respect of the debt investments held. • There are no special relationships or arrangements between the Fund and the issuers of any Australian debt investment to be held which effect the amount of interest income that will be paid from those investments. Further issues for you to consider: This Ruling will apply to income derived in respect of new investments that are acquired by the Fund so long as: • there are no material changes to the relevant facts of circumstances of this Ruling
• the Fund satisfies the 'portfolio interest test' referred to in paragraph 128B(3CA)(a) of the ITAA 1936 in relation to the new investments • the Fund does not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936 in relation to the new investments, and • the new equity and debt investments satisfy all of the characteristics that are listed in facts of this Ruling and are not investments held by third party pooled funds where the Fund receives a return on units it owns in a pooled fund.
Income Tax Assessment Act 1936 paragraph 128B(3)(jb) Income Tax Assessment Act 1936 paragraph 128B(3CA) Income Tax Assessment Act 1936 paragraph 128B(3CD) Income Tax Assessment Act 1936 section 128D Income Tax Assessment Act 1997 section 118-520
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 Income Tax Assessment Act 1997 (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 Fund is a non-resident The Commissioner has determined from the facts and circumstances that the Fund is not a resident of Australia. Therefore, the Fund satisfies this requirement. The Fund is a superannuation fund for foreign residents Section 118-520 of the ITAA 1997 provides: 118-520(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. 118-520(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 i. An indefinitely continuing fund The Scheme and the Rules provide no indication that there is an intention for the Fund to end at a definite point in time. Therefore, it is acceptable that the Fund will continue to operate for an indefinite period and the Fund is considered to satisfy this requirement. Therefore, the Fund satisfies this requirement. ii. 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 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). The main purpose of the Fund as set out in the Scheme is to provide pensions for members on retirement. Broadly, the Fund provides benefits to members in the following circumstances: a. Retirement pension
b. Death benefits c. Disability benefits There are no benefits provided by the Fund to contributors and beneficiaries beyond those as prescribed above. The Commissioner accepts that, apart from the retirement at or after normal retiring age, the alternate circumstances of access to the funds above listed align to the contemplated contingencies of a provident, benefit, superannuation or retirement fund. All monies managed by Committee of Management on behalf of the Fund are used solely for the purposes of administering and paying out benefits under the Fund. Therefore, the Fund will satisfy this requirement. iii. Established in a foreign country The Fund was established in Country A (a foreign country). Therefore, it satisfies this requirement. iv. Was established and maintained only to provide benefits for individuals who are not Australian residents The Fund was established in Country A as the pension fund for the Fund's staff. The Fund operates to implement its pension scheme for its members not in Australia.
It is considered that the possibility of a very small number of members being returned residents or becoming Australian residents after ceasing eligible employment 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. v. 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 registered office of the Fund is in Country A. The Fund is established by Country A National Board. The Country A Secretary of State is the Guarantor. The management of the Fund's management and investment are conducted by the Committee of Management. None of these entities are Australian residents.
The Fund has further confirmed in its statement letter that its central management and control is carried outside Australia by entities none of whom is an Australian resident. Therefore, the Fund satisfies this requirement. vi. Subsection 118-520(2) A statement has been provided by the Fund confirming that no amounts have been paid to the Fund, nor set aside to be paid to the Fund, that can be deducted under this Act. Further, no amounts have been paid to the Fund, or set aside or be paid to the Fund, for which a tax offset has been allowed, or would be allowable, under this Act. 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. The income, consisting of interest, dividend or non-share dividend income, is derived by the Fund
Subsection 128B(3CA) of the ITAA 1936, along with paragraph 128B(3)(jb) of the ITAA 1936 requires the superannuation fund for foreign residents to derive the interest, dividend or non-share dividend income from its Australian investments. The Fund invests directly into Australia in accordance with its investment management agreements with investment managers and receives interest, dividend or non-share dividend income directly from its Australian investments via the custodian accounts. The investment managers provide investment management services to the Fund subject to the investment guidelines within the agreements, and for payment of a prescribed fee. The Fund has also confirmed that it is the legal and beneficial owner of all the Australian investments. As per facts and relevant circumstances of this Ruling, for the avoidance of doubt, this ruling does not cover any investments held by third party pooled funds where the Fund receives a return on units it owns in a pooled fund or any distributions from another fund that are not interest or dividends from Australia that are beneficially owned by the Fund.
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 Section XX of Country A as a tax-exempt Pension Fund. Therefore, the Fund will satisfy this requirement. Subsection 128(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: 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 Australian company, or trust. Further, the Fund 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. ii. The Fund satisfies the 'influence test' Subsection 128(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 the relevant facts and circumstances to this Ruling:
a. Neither the Fund, nor any related party, has involvement in the day-to-day management of the business of any of the Australian companies, trusts, or Australian debt issuer. b. Neither the Fund, nor any related party, has the right to appoint a director to the Board of Directors of the Australian company, Australian debt issuer or equivalent role in a trust. 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, Australian debt issuer or equivalent role in a trust. d. Neither the Fund, nor any related party, has the ability to direct or influence the operation of the Australian company, Australian debt issuer or trust 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 Australian debt issuer. 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. iii. 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 in Australia.