ATO ID 2009/67: Superannuation fund for foreign residents
Date of decision: 6 July 2009
Year of income: Year ended 30 June 2007 Year ended 30 June 2008 Year ended 30 June 2009 Year ended 30 June 2010 Year ended 30 June 2011
Business line: Superannuation

Issue
Is the retirement plan a 'superannuation fund for foreign residents' for the purposes of paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Decision
Yes. The retirement plan is a 'superannuation fund for foreign residents' for the purposes of paragraph 128B(3)(jb) of the ITAA 1936.

Facts
The Plan was established in a country outside Australia. The purpose of the Plan is to provide participating employees with retirement and disability benefits. Benefits are paid when an employee ceases employment after reaching retirement age (defined in the plan as age 60), satisfies certain service requirements or because of death or total and permanent disability. The Plan will also pay out benefits when participating employees reach age 70, whether or not they have ceased employment. The Plan was established, and is maintained only to provide such benefits for individuals who are not Australian residents. The amounts held in the Plan are not used for any purposes other than providing benefits to participants, former participants and their beneficiaries under the Plan and paying the reasonable expenses of administering the Plan. Contributions are being made into the Plan by the sponsoring employer of the Plan. Those contributions are invested by the trustee of the Plan with any gains being credited to the accounts of the members of the Plan. The Plan's central management and control is carried on outside Australia by entities none of whom is an Australian resident. It is the intention and expectation that the Plan will be continued indefinitely. The Plan is not one for which an amount has been set aside, or to which an amount has been paid, by a taxpayer that is an amount that has been allowed or is allowable as a deduction or rebate under any section of the ITAA 1936 or the Income Tax Assessment Act 1997 (ITAA 1997).

Reasons for decision
Summary: Paragraph 128B(3)(jb) of the ITAA 1936 exempts interest and dividend (including non-share dividend) income derived by a non-resident that is a 'superannuation fund for foreign residents'. Subsection 995-1(1) of the ITAA 1997 provides that 'superannuation fund for foreign residents' has the meaning given by section 118-520 of the ITAA 1997. A fund is a 'superannuation fund for foreign residents' at a time under section 118-520 of the ITAA 1997 if: Under subsection 118-520(2) of the ITAA 1997, a fund is not a 'superannuation fund for foreign residents' if: The first question to consider in determining whether the Plan is a 'superannuation fund for foreign residents' within the meaning of section 118-520 of the ITAA 1997 is whether the Plan is a '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 the current circumstances, contributions are being made into the Plan by the sponsoring employer of the Plan. The contributions are then being invested by the trustee of the Plan with any gains being credited to the accounts of the members of the Plan. Therefore the Plan is a 'fund'. The term 'indefinitely continuing fund' in subparagraph (a)(i) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997 is not defined. The Australian Oxford Dictionary defines 'indefinite' as 1 vague, undefined. 2 unlimited... and 'indefinitely' as 1 for an unlimited time... 2 in an indefinite manner. In the current circumstances, there is no clause in the trust deed of the Plan which requires the Plan to be terminated or wound up after a specified period. It is stated in the deed that it is the intention and expectation that the Plan will be continued indefinitely. The plan is thus an 'indefinitely continuing fund' within the meaning of subparagraph (a)(i) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997. 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: Therefore, the Plan satisfies subparagraph (a)(ii) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997. According to a statement provided by the trustee of the Plan, the Plan: Therefore, the Plan satisfies paragraphs 118-520(1)(b), 118-520(1)(c) and 118-520(1)(d) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997. The trustee of the Plan has also stated that no amount paid to the fund or set aside for the fund has been or can be deducted under the ITAA 1936 or the ITAA 1997. The trustee has also stated that a tax offset has not been allowed or is allowable for such an amount. Therefore, subsection 118-520(2) of the ITAA 1997 has no application. Accordingly, the Plan is a 'superannuation fund for foreign residents' within the meaning of subsection 118-520 of the ITAA 1997. It is therefore a 'superannuation fund for foreign residents' for the purposes of paragraph 128B(3)(jb) of the ITAA 1936.

Legislative references: Income Tax Assessment Act 1936 paragraph 128B(3)(jb)
Case references: Cameron Brae Pty Ltd v Federal Commissioner of Taxation (2007) 161 FCR 468 2007 ATC 4936 (2007) 67 ATR 178
Other references: The Australian Oxford Dictionary, 2004, Oxford University Press, Melbourne
Subject references: Superannuation funds Non resident superannuation funds Withholding taxes