Private ruling: Exemption from income tax & withholding tax
Published: August 2012
Ruling period: Financial year ended 30 June 2004 | Financial year ended 30 June 2005 | Financial year ended 30 June 2006
Date scheme commenced: 1 July 2003

Ruling: Q1: Is the trustee of the pension plan exempt from income tax on its dividend and/or interest income derived from Australia under paragraph 23(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes | Q2: Is the trustee of the pension plan excluded from liability to withholding tax on its interest and/or dividend income derived from Australia under paragraph 128B(3)(a) of ITAA 1936? | A2: Yes

Relevant facts and circumstances: The applicant has applied for a private ruling for a 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 is an indefinitely continuing fund and a provident, benefit, superannuation or retirement fund, was established in a foreign country, was established and is maintained only to provide benefits for individuals who are not Australian residents, the central management and control of the fund is carried on outside Australia by entities none of whom is an Australian resident, an amount paid to the fund or set aside for the fund has not been or cannot be deducted under the Income Tax Assessment Act 1997 (ITAA 1997) and a tax offset has not been allowed or is not allowable for such an amount. · 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 tax in respect of income from investments and deposits in that country. · Copies of the financial statements for the 2010 and 2011 years. · A copy of the fund document which provides details of rules and benefits available to the members. A copy of a statement from the trustee of the pension plan (fund) confirming that: · the entity was established in a country outside Australia, · the entity was established, and is maintained and applied for the sole purpose of providing superannuation benefits for persons other than persons who are, or would ordinarily be or become residents of Australia or residents of a Territory of the Commonwealth, · the central management and control of the entity is carried on outside Australia by persons none of whom is a resident of Australia or a resident of a Territory of the Commonwealth, · the entity 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 in respect of which a rebate of tax has been allowed or is allowable, under any provision of the Income Tax Assessment Act 1936

Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 6(1) . | Income Tax Assessment Act 1936 Paragraph 23(jb ). | Income Tax Assessment Act 1936 Paragraph 128B(3)(a). | Income Tax Assessment Act 1936 Paragraph 128B(3)(jb). | Income Tax Assessment Act 1936 Section 128D . | Income Tax Assessment Act 1997 Section 118-520

Reasons for decision: Detailed Reasoning - Issue 1: The term 'foreign superannuation fund' is defined in subsection 6(1) of the ITAA 1936 as follows: · foreign superannuation fund means a provident, benefit, superannuation or retirement fund: · that was established in a country outside Australia; · that was established, and is maintained and applied, for the sole purpose of providing superannuation benefits for persons other than persons who are, or would ordinarily be or become, residents of Australia or residents of a Territory (even if pensions are paid out of the fund to the latter persons); and · the central management and control of which is carried on outside Australia by persons none of whom is a resident of Australia or a resident of a Territory; · not being a fund 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 in respect of which a rebate of tax has been allowed or is allowable, under any provision of this Act. Perusal of the rules indicates that the fund satisfies the definition of a foreign superannuation fund for the purposes of subsection 6(1) of the ITAA 1936. Under paragraph 23(jb) of the ITAA 1936, interest or dividends or non share dividends received by a foreign superannuation fund are exempt from Australian income tax if at all times during the year of income, the entity was a foreign superannuation fund. As it is considered that this pension fund was a foreign superannuation fund at all times during the year of income, interest and/or dividends or non share dividends received by the pension fund will be exempt from Australian income tax under paragraph 23(jb) of the ITAA 1936. Paragraph 128B(3)(a) of the ITAA 1936 exempts interest, dividend income or non share dividends received by a foreign superannuation fund from Australian withholding tax if the income is exempt from income tax by virtue of paragraph 23(jb) of the ITAA 1936 and exempt from income tax in the country where the foreign superannuation fund resides. The certification from the Tax Authorities confirms that the fund is exempt from income tax on its interest and/or dividend income. Accordingly, the interest and/or dividend income of the fund is excluded from withholding tax pursuant to paragraph 128B(3)(a) of the ITAA 1936 | Detailed Reasoning - Issue 2: For the financial year ended 30 June 2007, paragraph 128B(3)(jb) of the ITAA 1936 excludes interest and dividend income from withholding tax where that income: · is derived by a non-resident that is a foreign superannuation fund; and · consists of interest, or consists of dividends or non-share dividends paid by a company that is a resident; and · is exempt from income tax in the country in which the non-resident resides. As mentioned above, it is considered that the pension plan is a foreign superannuation fund as defined in subsection 6(1) of the ITAA 1936. The statement by the trustee of the fund also confirms that the requirements of this definition are met. In addition, the certification from the foreign country Authorities confirms that the fund is exempt on its interest and dividend income in foreign country. Accordingly, the interest and/or dividend income of the fund is excluded from withholding tax pursuant to paragraph 128(3)(jb) of the ITAA 1936. Section 128D of the ITAA 1936 provides that interest and dividend income that is excluded from withholding tax pursuant to paragraph 128B(3)(jb) is not assessable income. For the financial years ended 30 June 2008 and onwards, paragraph 128B(3)(jb) of the ITAA 1936 excludes interest and dividend income from withholding tax where that income: · is derived by a non-resident that is a superannuation fund for foreign residents; and · consists of interest, or consists of dividends or non share dividends paid by a company that is a resident; and · is exempt from income tax in the country in which the non-resident resides. The term 'superannuation for foreign residents' is defined in section 118-520 of the Income Tax Assessment Act 1997 (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 or retirement fund; and · it was established in a foreign country; and · it was established, and is maintained at that time, only to provide benefits for individuals who are not Australian residents; and · 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 Perusal of the rules indicates that the fund satisfies the definition of a superannuation fund for foreign residents for the purposes of section 118-520 of the ITAA 1997. The statement by the trustee of the fund also confirms that the requirements of this definition are met. Accordingly, the interest and/or dividend income of the fund is excluded from withholding tax and is not assessable income.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Question 1: Is the trustee of the pension plan excluded from liability to withholding tax on its interest and/or dividend income derived from Australia under paragraph 128B(3)(jb) of the ITAA 1936? | Question 2: Is interest and/or dividend income derived by the trustee of the pension plan non-assessable income of the fund under section 128D of the ITAA 1936? | Financial year ended 30 June 2008 | Financial year ended 30 June 2009 | Financial year ended 30 June 2010 | Financial year ended 30 June 2011 | Financial year ending 30 June 2012 | Financial year ending 30 June 2013 | Financial year ending 30 June 2014 | Financial year ending 30 June 2015