Private ruling: Exemption from Income tax/Withholding tax
Ruling period: Financial year ended 30 June 2008 | Financial year ended 30 June 2009 | Financial year ended 30 June 2010 | Financial year ending 30 June 2011 | Financial year ending 30 June 2012 | Financial year ending 30 June 2013
Date scheme commenced: 1 July 2007

Ruling: Q1: Is the trustee of the overseas based superannuation fund excluded from liability to withholding tax on its interest and/or dividend income derived from Australia under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1:  | Q2: Is interest and/or dividend income derived by the trustee of the overseas based superannuation fund non-assessable income of the fund under section 128D of the ITAA 1936? | A2: 

Relevant facts and circumstances: The applicant has applied for a private ruling for the superannuation fund for foreign residents. The application includes the following documentation: · A copy of a statement from the trustee of the overseas based superannuation fund (the fund), confirming that the fund qualifies as a foreign superannuation fund, as defined by subsection 995-1(1) of the Income Tax Assessment Act 1997 and also section 6(1) of the Income Tax Assessment Act 1936 , insofar as:- o It was established outside of Australia, although pension benefits may be paid to a number of Australian residents. It is our understanding that pursuant to section 6(7A) of the Income Tax Assessment Act 1936 , a fund will not lose its status as a foreign superannuation fund merely because pensions are paid out of the fund to residents of Australia or a Territory of the Commonwealth, and, o the central management and control of the fund is carried on outside Australia by persons who are not residents of Australia or a Territory of the Commonwealth, The fund is not a fund for which an amount has been set aside or paid by a taxpayer, and either a tax deduction or a tax rebate has been allowed or is allowable for Australian tax purposes in respect of that amount. A letter from the tax authorities in the country of residence of the fund certifying that the fund is a registered pension fund and is exempt from income tax in respect of its income from investment and deposits. Copies of annual financial reports for the 2007,2008 and 2009 years. A copy of fund member's guide providing details of rules and benefits available to the members.

Relevant legislative provisions: Income Tax Assessment Act 1936 Paragraph 128B(3)(jb) | Income Tax Assessment Act 1936 Section 128D | Income Tax Assessment Act 1936 Section 6(7)A and | Income Tax Assessment Act 1997 Section 118-520.

Reasons for decision: Summary: Paragraph 128B(3)(jb) of the ITAA 1936 excludes interest and dividend income from withholding tax where that income: (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; Former section 6(7A) of the ITAA 1936 ensured that a provident, benefit, superannuation or retirement fund which paid a pension to residents of Australia or of a territory did not preclude it from qualifying as a 'foreign superannuation fund'. However, this section was repealed as an inoperative provision following the repeal of the former term 'foreign superannuation fund' with effect from 14 September 2006. From this date onwards, the current definition of the term 'superannuation fund for foreign residents' as defined in section 118-520 of the Income Tax Assessment Act 1997 (ITAA 1997) applies. The term 'superannuation fund for foreign residents' is defined in section 118-520 of the ITAA 1997 as follows: 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 fund 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; or (b) a tax offset has been allowed or is allowable for such an amount. The fund does not meet the definition of the term 'superannuation fund for foreign residents'. In particular, the condition in paragraph 118-520(1)(c) of ITAA 1997 has not been met which states (in part) that the fund should only provide benefits for individuals who are not Australian residents. The trustee of the fund has stated that the fund was established outside Australia, although pension benefits may be paid to a number of Australian residents. In view of above, the fund does not meet the definition of the term 'superannuation fund for foreign residents'. Accordingly the interest and/or dividend income of the fund is not excluded from withholding tax pursuant to paragraph 128B(3)(jb) of the ITAA 1936. Hence, the provisions of section 128D of the ITAA 1936 do not apply and its interest and dividend income constitute assessable income.

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