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 under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Yes. This ruling applies for the following periods: 1 July 20xx to 30 June 20xx The scheme commences on: 1 July 20xx
1. The Fund was established under Statute. The Fund's role is to assure the payment and guarantee of benefits to certain employees and their beneficiaries. 2. The plans administered by the Fund include a Defined Benefit Plan and an Alternative Plan. 3. The Fund is currently governed by Statute. The Statute forms part of the scheme to which this Ruling relates. 4. The Fund has all the powers and privileges of a corporation. 5. The Fund holds legal title to its constitutive contributions and other assets on trust until they can be distributed in accordance with the Statute. 6. The Fund is governed by the Board. 7. The Board is based in Country X. 8. The Board is a corporation under Country X law. 9. The Fund's main purpose is to provide retirement annuities and other benefits for employees, and their dependents. 10. The Board has the power to: • contract and act in the Fund's corporate name • may transfer all or a portion of its assets to a trust that can commingle funds • hold meetings • consider applications and authorise payments • certify amounts and submit vouchers
• invest the Fund's money • elect officers and appoint employees • receive, record and deposit payments • make rules and regulations. 11. The Fund provides retirement benefits, specifically: • Defined Benefit (based on a salary percentage depending on kind of employee role) in based on age, employment type and date of entry into the Fund. • Alternative Plan, which is where members' social security benefits may reduce retirement benefits and other associated benefits. 12. Both members and employers contribute to the pension scheme. The difference in contribution can also be based on actuarial calculations. Member contributions are percentages of their earnable compensation, depending upon their relative occupation, which the Board may certify. Members cannot use their accumulated contributions to make loans. Management of Investments 13. The Board is the Fund's trustee and may contract for investment management services as well as for trust companies. 14. The Fund has a number of investment managers. The Board has oversight of all investment managers.
15. The Fund's master custodian is a Trust Company. Assets are held at the Trust Company as custodian. All returns are paid directly into the appropriate Fund account at the Trust Company as custodian. 17. It is possible for the Fund to invest into pooled funds. There are no investments that are managed by collective or common group trusts, which can pool funds, covered by this Ruling. Termination of the Fund 18. The Fund has provided a statement that it is an indefinitely continuing fund. Benefits provided Defined Benefit Rules • Normal retirement: a defined benefit pension upon normal retirement age, depending upon years of service provided. • Early retirement: members can also retire early at xx (with x years of service) with reduced benefits. • Disability retirement allowance: the Board-appointed panel awards a defined benefit pension where a member becomes unable to work and cannot qualify for a work-related disability allowance. A work-related disability allowance can also be awarded. • Death Benefits. Alternative Plan Rules
• Social Security: The retirement allowance and other benefits are affected by the members' receipt of social security benefits. 19. In accordance with the Statute, members will be refunded of contributions where their employee status is terminated having completed sufficient years of service. By accepting the separation refund, all future benefits are forfeited. Such members may also be subject to penalties and other tax implications. Other relevant facts 20. 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. 21. 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. 22. The Fund has submitted a notice from the Country X Tax Authority which states that the Fund is registered and that tax relief and exemptions are available. 23. Income of the Fund is not non-assessable non-exempt income because of: • Income Tax Assessment Act 1997 Subdivision 880-C, or • Income Tax (Transitional Provisions) Act 1997 Division 880 . The Fund and future Australian investments
24. The Fund has invested in Australian debt investments. These debt investments have the following characteristics: • All investments are listed on the Australian Securities Exchange (ASX). • The Fund holds less than 10% of the total participation interests in each Australian company, trust or real estate investment trust (REIT). • 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. • 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. • 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. • 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.
• 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 debt interest held. The Fund only holds rights to vote in proportion to its debt interest in each Australian company, trust or REIT.
Income Tax Assessment Act 1936 paragraph 128B(3)(jb) Summary The Fund is considered 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 under paragraph 128B(3)(jb) or the ITAA 1936.
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 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. 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 statement that it is an indefinitely continuing fund. 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). Broadly, the Fund provides benefits to members as follows: Defined Benefit Rules • Normal retirement: a defined benefit pension upon normal retirement age, depending upon years of service provided. • Early retirement: members can also retire early at xx (with x years of service) with reduced benefits. • Disability retirement allowance: the Board-appointed panel awards a defined benefit pension where a member becomes unable to work and cannot qualify for a work-related disability allowance. A work-related disability allowance can also be awarded. • Death Benefits. Alternative Plan Rules Social Security: The retirement allowance and other benefits are affected by the members' receipt of social security benefits.
In accordance with the Statute, members will be refunded of contributions where their employee status is terminated having completed sufficient years of service. By accepting the separation refund, all future benefits are forfeited. These members may also be subject to penalties and other tax implications. 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 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 to assure the payment and guarantee of benefits to certain employees and their beneficiaries. The employers and their employees reside in 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 Board exercises the CM&C of the Fund. The Board members are not Australian residents. 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 Fund has submitted a notice from the Country X Tax Authority which states that the Fund is registered and that tax relief and exemptions are available. Therefore, the Fund satisfies this requirement. 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 paid by Australian resident companies.
The Fund has confirmed that a Custodian holds legal title on behalf of the Fund and acts as international Custodian for the Fund and is the only entity between the Fund and the Australian investments. The Australian investments are held in a separately managed account with the Custodian. Income from the investments is paid directly into the Fund's account with the Custodian. It is accepted that the Fund is the beneficial owner of its Australian investments (as described in the relevant facts and circumstances of this Ruling). The Fund will, therefore, derive the relevant income for the purposes of subsection 128(3CA) of the ITAA 1936 and paragraph 128B(3)(jb) of the ITAA 1936. Therefore, the Fund satisfies this requirement. The 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. 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: - 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, trust or real estate investment trust (REIT). Further, 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. 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 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 current investments discussed 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 debt interest held. e. The Fund only holds rights to vote in proportion to its debt 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 under paragraph 128B(3)(jb) of the ITAA 1936.