Private ruling: Foreign superannuation fund
Date of advice: 21 August 2019
Published: October 2019
Ruling period: Income year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the Fund located and established overseas a 'foreign superannuation fund' within the meaning of that expression in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997), including for the purposes of Division 305 of the ITAA 1997? | A1: Yes.

Relevant facts and circumstances: In 20XX, the Fund was established by a Deed of Trust made between the Principal Employer and an entity (Company 1) as Trustee of the Fund. The Principal Employer is a company incorporated overseas, with its registered office overseas. Company 1 is a company incorporated overseas, with its registered office overseas. In 20XX, by Deed of Appointment and Renewal of Trustee, Company 2 replaced Company 1 as the sole trustee of the Fund. Until being replaced pursuant to that document, Company 1 had continued to be the trustee of the Fund. The Trust Deed of the Fund (the Deed) has not been added to or varied. The Deed provides for the removal of and appointment of a new trustee(s). Meetings of the Trustee's directors are all conducted overseas. Less than 10% of the Fund's portfolio of assets is invested in Australian assets. About 30% of Fund members are Australian residents. The Trustee wishes to target and offer Fund membership to 'globally mobile' expatriates, executives and entrepreneurs working in Asia who are Australian residents or ex-Australian residents who may wish to return to Australia or live in Australia (target employees). The members will be ordinary members and each will have their own separate accumulation account. The target employees will include Australian residents, former Australian residents who may return to Australia and foreigners who subsequently become Australian residents. The Deed provides the rules relating to contributions made to the Fund. Under the Deed no member, beneficiary, nor any relative of either, has the right to borrow against the security of any of the benefits expected to be received under the Deed. The Deed provides the preservation conditions for the benefits held in the Fund. Relevant clauses under the Deed provide for the payment of benefits (lump sum and pension benefits) when an ordinary member: · retires from the workforce or after normal retirement age; · reaches the age of 60; · becomes totally and permanently disabled; · becomes temporarily disabled; or · dies. The Deed provides that the Fund 'shall be indefinitely continuing' unless an applicable law or perpetuity rule requires it to end or the Fund is terminated in accordance with the Trust Deed provisions. The Deed states that the Fund will be wound up if: · the employer is no longer able to make contributions due to being placed in receivership, liquidation or if the employer permanently terminates its contributions to the Fund by notice in writing to the trustee; or · there are no further members remaining in the Fund; or · the Trustee otherwise determines for any reason that the Fund should be wound up. The Deed states that for discretionary class members, benefits will be provided as lump sums or pensions when, or anytime after, the member: · retires from gainful employment with the employer at or after normal retirement age; · retires from the workforce; · becomes totally and permanently disabled; or · retires from gainful employment with the employer and there is no arrangement in place for the member to be re-employed by the employer or associated entity and further the member is not dismissed or due to be dismissed by the employer.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 295-95(2) | Income Tax Assessment Act 1997 Subsection 295-95(3) | Income Tax Assessment Act 1997 Section 995-1 | Income Tax Assessment Act 1997 Subsection 995-1(1) | Superannuation Industry (Supervision) Act 1993 Section 10 | Superannuation Industry (Supervision) Act 1993 Section 62 All references are to the ITAA 1997 unless otherwise indicated.

Reasons for decision: Summary: The Fund is a foreign superannuation fund. | Detailed Reasoning - Meaning of 'foreign superannuation fund': A foreign superannuation fund is defined in subsection 995-1(1) as follows: (a) a superannuation fund is a foreign superannuation fund at a time if the fund is not an Australian superannuation fund at that time; and (b) a superannuation fund is a foreign superannuation fund for an income year if the fund is not an Australian superannuation fund for the income year. Subsection 295-95(2) defines Australian superannuation fund as follows: A superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if: (a) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and (b) at that time, the central management and control of the fund is ordinarily in Australia; and (c) at that time either the fund had no member covered by subsection (3) (an active member ) or at least 50% of: i. the total market value of the fund's assets attributable to superannuation interests held by active members; or ii. the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members; is attributable to superannuation interests held by active members who are Australian residents. Subsection 295-95(3) states: A member is covered by this subsection at a time if the member is: (a) a contributor to the fund at that time; or (b) an individual on whose behalf contributions have been made, other than an individual: (i) who is a foreign resident; and (ii) who is not a contributor at that time; and (iii) for whom contributions made to the fund on the individual's behalf after the individual became a foreign resident are only payments in respect of a time when the individual was an Australian resident. Thus, a superannuation fund that is established outside of Australia and has its central management and control outside of Australia would qualify as a foreign superannuation fund . The fact that some of its members may be Australian residents would not necessarily alter this. Subsection 995-1(1) defines a superannuation fund as having the same meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA), that is: (a) a fund that: (i) is an indefinitely continuing fund; and (ii) is a provident, benefit, superannuation or retirement fund; or (b) a public sector superannuation scheme. | Detailed Reasoning - Meaning of 'provident, benefit, superannuation or retirement fund': The High Court examined both the terms superannuation fund and fund in Scott v. Federal Commissioner of Taxation (No. 2) (1966) 10 AITR 290; (1966) 40 ALJR 265; (1966) 14 ATD 333 (Scott). In that case, Justice Windeyer stated: ...I have come to the conclusion that there is no essential single attribute of a superannuation fund established for the benefit of employees except that it must be a fund bona fide devoted as its sole purpose to providing for employees who are participants money benefits (or benefits having a monetary value) upon their reaching a prescribed age. In this connexion "fund", I take it, ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalised. I do not put this forward as a definition, but rather as a general description. The issue of what constitutes a provident, benefit, superannuation or retirementfund was discussed by the Full Bench of the High Court in Mahony v. Federal Commissioner of Taxation (1967) 41 ALJR 232; (1967) 14 ATD 519 ( Mahony ). In that case, Justice Kitto held that a fund had to exclusively be a 'provident, benefit or superannuation fund' and that 'connoted a purpose narrower than the purpose of conferring benefits, in a completely general sense...". This narrower purpose meant that the benefits had to be 'characterised by some specific future purpose' such as the example given by Justice Kitto of a funeral benefit. Furthermore, Justice Kitto's judgement indicated that a fund does not satisfy any of the three provisions, that is, 'provident, benefit or superannuation fund', if there exist provisions for the payment of benefits 'for any other reason whatsoever'. In other words, though a fund may contain provisions for retirement purposes, it could not be accepted as a superannuation fund if it contained provisions that benefits could be paid in circumstances other than those relating to retirement. In section 62 of the SISA, a regulated superannuation fund must be 'maintained solely' for the 'core purposes' of providing benefits to a member when the events occur: · on or after retirement from gainful employment; or · attaining a prescribed age; and · on the member's death (this may require the benefits being passed on to a member's dependants or legal representative). Notwithstanding the SISA applies only to 'regulated superannuation funds' (as defined in section 19 of the SISA), and foreign superannuation funds do not qualify as regulated superannuation funds as they are established and operate outside Australia, the Commissioner views the SISA (and the Superannuation Industry (Supervision) Regulations 1994 (SISR)) as providing guidance as to what 'benefit' or 'specific future purpose' a superannuation fund should provide. In view of the legislation and the decisions made in Scott and Mahony , the Commissioner's view is that for a fund to be classified as a superannuation fund, it must exclusively provide a narrow range of benefits that are characterised by some specific future purpose. That is, the payment of superannuation benefits upon retirement, invalidity or death of the individual or as specified under the SISA. In summary, the Fund in this case will be a superannuation fund if it can be established that: · it is a 'fund'; · it is indefinitely continuing; and · it is a provident, benefit, superannuation or retirement fund | Detailed Reasoning - Fund: According to Justice Windeyer in Scott above, a fund 'ordinarily means money (or investments) set aside and invested, the surplus income therefrom being capitalised.' In accordance with the Deed, contributions are made to the Fund for/on behalf of the members of the Fund and then invested by the Trustee with the income therefrom being capitalised until such time as benefits are paid to members on meeting certain conditions. Consequently, in this case, there is a 'fund' that is set aside and invested for the purpose of paying benefits to the members of the Fund. | Detailed Reasoning - Indefinitely continuing fund: The Deed states that the Fund 'shall be indefinitely continuing' unless an applicable law or perpetuity rule requires it to end or the Fund is terminated in accordance with the Trust Deed provisions. The Deed also states in the winding up clause that it will be wound up only if: · the employer is no longer able to make contributions due to being placed in receivership, liquidation or if the employer permanently terminates its contributions to the Fund by notice in writing to the trustee; or · there are no further members remaining in the Fund; or · the Trustee otherwise determines for any reason that the Fund should be wound up. The ruling application states that though the Trustee has the power to wind up the Fund it has not exercised that power and there is no specific date by which it will exercise that power. The Deed does not state that the Fund will be wound up after a specific period. In Cameron Brae Pty Ltd v. Federal Commissioner of Taxation (2007) 243 ALR 273 ( Cameron Brae ) it was concluded that the fund was an indefinitely continuing fund where the deed of that fund contained a similar clause to clause 45 of the Deed of the Fund, that is, the trustee could wind up the fund for any reason. Therefore it is accepted that there is the intention and expectation that the Fund will be an indefinitely continuing fund. | Detailed Reasoning - Provident, benefit, superannuation or retirement fund: In accordance with the Deed of the Fund, its sole purpose is to provide benefits as lump sums or pensions in respect of participating ordinary members when or anytime after the member: · retires from the workforce at or after normal retirement age; · retires from employment with an employer at or after normal retirement age; · reaches the age of 60 years; · terminates employment or is absent from employment because of retirement or total disablement; or · dies. Discretionary members will have lump sums and pensions from the available assets of the Fund as determined by the Trustee when or anytime after the member: · retires from gainful employment with the employer at or after normal retirement age; · retires from the workforce; · becomes totally and permanently disabled in the opinion of the Trustee; or · retires from gainful employment with the employer and there is no arrangement in place to for the member to be re-employer by the employer or associated entity and further the member is not dismissed or due to be dismissed by the employer. Therefore it is clear that the benefits paid under the specific circumstances mentioned above, are payable upon events common to superannuation funds, that is, on retirement, disability or death. Further, a member is not entitled to borrow against the security of benefit entitlements or to receive benefits prior to the above events. Therefore a member is not able to make early withdrawals for purposes other than those relating to retirement, for example, for education, home loans or medical expenses. Consequently, as per Scott , discussed above, the Fund's sole purpose is to provide benefits for members on retirement. As a result the Fund is a superannuation fund. | Detailed Reasoning - Foreign superannuation fund: As stated above a foreign superannuation fund is a superannuation fund that is not an Australian superannuation fund. In order for a superannuation fund to be an Australian superannuation fund, all of the conditions under subsection 295-95(2) must be satisfied. In this case, the management and control of the Fund is not in Australia. All of the conditions under subsection 295-95(2) must be satisfied in order for the Fund to be an Australian superannuation Fund. As the condition under paragraph 295-95(b) has not been met, there is no need to consider the other conditions. The Fund is not an Australian superannuation fund in this case, instead, it is a foreign superannuation fund.