Private ruling: Withholding tax - superannuation fund for foreign residents
Date of advice: 9 January 2020
Published: February 2020
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the Pension Plans, investing through the Fund, excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from the Fund's investments into Australia under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes.

Relevant facts and circumstances: Background to the Pension Plans 1. The Pension Plans are defined benefit public sector pension plans created and governed by statute. 2. Each Pension Plan has been established for a different group of public sector employees. 3. Each Pension Plan has its own Board of Trustees (the Board), which is responsible for the proper operation of the pension plan. The Board and their committees establish rules and regulations for the relevant Pension Plan. The Boards however delegate all functions, powers and duties relating to the investment or reinvestment of Pension Plan monies to Entity A. Entity A invest the funds of each Pension Plan on its behalf. 4. Each Pension Plan has the rights and privileges of a corporation. Each Pension Plan's purpose is to provide pensions and other benefits for its members and their beneficiaries in accordance with the provisions of its relevant constituent statute. 5. Entity B is assigned, by each Board, all administrative functions of the Pension Plans except for investment. Entity A 6. Entity A was created to centralise all functions relating to the purchase, sale or exchange of securities for the State's diverse funds under experienced and professional management. 7. Entity A is responsible for the investment management of many of the State's assets, including the assets of each Pension Plan. 8. Entity A owes a fiduciary duty to the beneficiaries of its investment portfolios. It must manage and invest the investment portfolio solely in the best interests of the beneficiaries of the portfolio and for the exclusive purpose of providing financial benefits to the beneficiaries of the portfolio. 9. In order to manage the assets, Entity A may establish, maintain and operate one or more common trust funds in which money and property belonging to the various funds in the custody of the State Treasurer are combined for the purpose of investment. 10. Under this power, Entity A established the Fund. The Fund 11. The Fund is a common trust fund created under a statutory power. It was established to invest the funds of the Pension Plans, and is managed by Entity A. 12. The Fund invests in a variety of assets, including international equities. Its Australian investments include Australian listed equities, listed real estate investment trusts, and Australian currency. 13. The Fund is a statutory unit trust composed of units of participation of unlimited quantity. Each unit of participation represents an equal beneficial interest in the Fund. The number of units of participation owned by a Pension Plan represents the net capital contributions by a Pension Plan to the Fund, and its proportional interest in the Fund, including the proportional interest in the income earned by the Fund. 14. The value of a Fund unit is calculated as the net asset value of the Fund at any time divided by the number of units on issue. 15. Units in the Fund are valued daily and a Pension Plan beneficiary may withdraw funds in the Fund on any valuation day. The mechanism for doing so is by the Entity A redeeming a Pension Plan's units in the Fund, and paying the Pension Plan cash or in kind. 16. The units in the Fund are not transferrable, and may only be issued and redeemed by Entity A. 17. The Pension Plans directly own units in the Fund. 18. Entity A's expenses in relation to the investment of monies for each of the Pension Plans are covered by each of the Pension Plans on a pro-rated basis in accordance with their interest in the Fund. The Pension Plans and their rules 19. Membership of each Pension Plan is subject to its own eligibility criteria. Broadly, membership is based on the type of employee (casual, part time, full time) level of seniority, and years of service. 20. The Pension Plans are funded by a combination of employee, employer, and government contributions, as well as investment income. 21. The Pension Plans provide benefits to active members on retirement. 22. A defined benefit pension is paid to employees on their retirement according to a statutory formula taking into account years of service and salary. 23. Membership of a pension plan vests after X years of service. A member on vesting is guaranteed a retirement pension, provided that prior to retirement they do not request a return of contributions. 24. Where a member has been contributing to the pension plan for a period of less than X years and subsequently ends their employment, the member is only entitled to a return of their contributions to the system and a predetermined interest amount on those contributions. 25. Other benefits provided to members include disability pensions, payments on death of a member to the estate, and survivor pensions payable to dependents of the deceased member. 26. Members also have the ability to borrow funds against their contributions to the pension plan. Members may borrow up to X% of the contributions they have made to the fund up to a maximum of $X. A loan must be repaid in full by the member within X years. 27. Members also have the ability to transfer their fund's value between Pension Plans where they have had a change of employment, and receive credits for contributions made, years of service, and other factors that affect the calculation of a benefit payment. Other facts 28. The Fund can only be wound up on agreement between Entity A, the State Treasurer, and the Council. 29. The Fund and the participating Pension Plans are exempt from income tax in their resident jurisdiction. 30. The Fund received interest income from Australian investments, along with dividend and non-share dividend income from companies who are residents of Australia for tax purposes. The Pension Plans received this income as beneficiaries of the Fund. 31. The Retirement System's income from its Australian investments is not non-assessable non-exempt income because of: a. Subdivision 880-C of the ITAA 1997, or b. Division 880 of the Income Tax (Transitional Provisions) Act 1997 . The Fund's Australian investments 32. The Fund holds a number of investments in Australian Securities Exchange (ASX) listed securities and funds in Australia, as well as investments in publicly available Australian corporate bonds. A list of the investments that they currently hold is attached in Appendix A. The equity investments that are the subject of this ruling have the following characteristics: a. The investments represent holdings of less than 1% of the equity market capitalisation of each of the securities and funds that are held. b. All securities are listed on the ASX or another recognised stock exchange. c. The Fund, along with any related party, has a combined holding of less than 1% of the equity securities of the issuer. d. Neither the Fund nor any related party has any involvement in the day to day management of the issuing entity's business. e. Neither the Fund nor a related party has any right to representation on the board of an equity issuer, including the board of the corporate trustee of a unit trust in which the Fund acquired units. f. Neither the Fund nor a related party has any right to representation on any investor representative or advisory committee (or similar) of any equity issuer. g. Neither the Fund, nor any related party, has the ability to direct or influence the operation of the issuing entity's business outside of the ordinary rights conferred by the equity interest held. h. The Fund, along with any related party, only has rights to vote as a shareholder or unitholder in proportion to their equity interest in the relevant entity. 33. The income received from the Fund's Australian investments during the ruling period consists of: a. interest income b. dividend income c. managed investment trust fund payments d. other trust distributions, and e. gains arising on the disposal of securities.

Relevant legislative provisions: Income Tax Assessment Act 1936 paragraph 128B(3)(jb) | Income Tax Assessment Act 1936 subsection 128B(3CA) | Income Tax Assessment Act 1997 section 118-520

Reasons for decision: Summary: Question 1 Are the Pension Plans, investing through the Fund, excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from the Fund's investments into Australia under paragraph 128B(3)(jb) of the ITAA 1936? The Pension Plan beneficiaries of the Fund are excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from the Fund's investments into Australia under paragraph 128B(3)(jb) of the ITAA 1936. This is because the Pension Plan beneficiaries derive the relevant income from the Australian investments as it arises to the Fund. | Detailed Reasoning - Detailed reasoning: 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 Pension Plans are non-residents Each of the Pension Plans is not a resident of Australia for income tax purposes. The Pension Plans were all established overseas by statute, and their management teams are based entirely in that overseas jurisdiction. Therefore, the Pension Plans satisfy this requirement. The Pension Plans are superannuation funds for foreign residents Superannuation fund for foreign residents is a defined term in the ITAA 1936. Subsection 6(1) of the ITAA 1936 states: superannuation fund for foreign residents has the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997. Subsection 995-1(1) of the ITAA 1997 sets out the following: superannuation fund for foreign residents has the meaning given by section 118-520. Section 118-520 of the ITAA 1997 states the following: (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. Consequently, for the Pension Plans to each be considered superannuation funds for foreign residents for the purposes of paragraph 128B(3)(jb) of the ITAA 1936, it must be established that: · each Pension Plan is an indefinitely continuing fund · each Pension Plan is a provident, benefit, superannuation or retirement fund · each Pension Plan was established in a foreign country · each Pension Plan was established and is maintained only to provide benefits for individuals who are not Australian residents · the central management and control of each of the Pension Plans is carried on outside of Australia by entities none of whom are Australian residents · no amount paid to the Pension Plans or set aside for the Pension Plans has been or can be deducted under the ITAA 1997, and · no tax offsets have been allowed or would be allowable for an amount paid to the Pension Plans or set aside for the Pension Plans. Each Pension Plan is an indefinitely continuing fund The legislation provides no guidance on the meaning of 'indefinitely continuing'. It is not a technical legal expression, and the ordinary meanings of indefinitely and continuing involve little ambiguity or controversy. The Macquarie Dictionary , [Online], viewed on 1 February 2018, macquariedictionary.com.au defines 'indefinitely' and 'continuing' as follows: Indefinite: adjective 1. not definite; without fixed or specified limit; unlimited: an indefinite number 2. not clearly defined or determined; not precise. indefinitely, adverb Continue: verb ( Continued, continuing ) 1. to go forwards or onwards in any course or action; keep on. 2. to go on after suspension or interruption. 3. to last or endure. 4. to remain in a place; abide; stay. 5. to remain in a particular state or capacity Each of the Pension Plans is a separate pension fund for a different class of public sector employees. Each of the Pension Plans was established by statute and managed by Entity A, a part of a government agency. Each of the Pension Plans is established to provide defined benefit pensions to public service employees for their retirement. There is no indication that any of the Pension Plans are to be wound up in the near future, and none of the Pension Plans have a termination date. There is sufficient evidence to accept that each of the Pension Plans will continue to operate for an indefinite period of time. Therefore, the Pension Plans satisfy this requirement. Each of the Pension Plans is a provident, benefit, superannuation or retirement fund In Scott v. FCT (No. 2) (1966) 40 ALJR 265; 14 ATD 333, Windeyer J stated (40 ALJR 265 at 278; 14 ATD 333 at 351): There is no definition in the Act of a superannuation fund. The meaning of the term must therefore depend upon ordinary usage, the attributes of a thing thus denominated being those which things ordinarily so described have...the connotation of the phrase in the Act must be determined by one's general knowledge of the extent of the denotation of the phrase in common parlance...I have come to the conclusion that there is no 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 Mahony v Commissioner of Taxation (1967) 41 ALJR 232; (1967) 14 ATD 519, Kitto J stated: There was no definition in the Act of 'a provident, benefit or superannuation fund', and the meaning of the several expressions must therefore be arrived at in light of ordinary usage and with only one piece of assistance to be gathered from the immediate context. Since a fund, if its income was to be exempt under the provision, was separately required to be one established for the benefit of employees, each of the three descriptive words 'provident', 'benefit' and 'superannuation' must be taken to have connoted a purpose narrower than the purpose of conferring benefits, in a completely general sense, upon employees. Precise definition may be difficult, and in any case is unnecessary for present purposes. All that need be recognized is that just as 'provident' and 'superannuation' both referred to the provision of a particular kind of 'benefit' - in the one case a provision against contemplated contingencies, and in the other case a provision, to arise on an employee's retirement or death or other cessation of employment, of a subvention for him or his estate or persons towards whom he may have stood in some kind of relation commonly giving rise to a legal or moral responsibility - so 'benefit' must have meant a benefit, not in a general sense, but characterized by some specific future purpose. A funeral benefit is a familiar example. In Cameron Brae Pty Limited v FCT (2007) 161 FCR 468; [2007] FCAFC 135; 2007 ATC 4936, the Full Federal Court held that the relevant fund was a superannuation fund for the purposes of former section 82AAE of the ITAA 1936. Jessup J at [106] stated: In answering the question whether the fund was a "superannuation fund" as the term is ordinarily understood, it is, in my view, critical that payments could not have been made out of the fund (other than by way of administration expenses, taxation, etc) save to members of the relevant discretionary class, and save in circumstances which fell within the ordinary understanding of superannuation. A proper characterisation of the fund should, in my view, depend upon the purposes for which the assets and moneys of the fund might have been used rather than upon the quality of the rights of individual members of the fund. If the fund could have been used only to achieve what might be described as a superannuation purpose, I would describe the fund as a "superannuation fund". That a particular member of a discretionary class might not, ultimately, have received any payment, was not, in my view, disqualifying. ATO Interpretative Decision ATO ID 2009/67 Income Tax: Superannuation fund for foreign residents (ATO ID 2009/67) refers to these authorities to provide 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). 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: · cease their employment upon or after reaching retirement age (age 60) · cease their employment after the satisfaction of certain service requirements · cease their employment because of death or total and permanent disability, or · reach age 70, whether or not they have ceased employment. Therefore, the Plan satisfies subparagraph (a)(ii) of the definition of 'superannuation fund for foreign residents' in section 118-520 of the ITAA 1997. The above guidance establishes 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). The Pension Plans provide retirement, disability, death and survivor benefits to members and their dependents. The Pension Plans also provide for the return of contributions to contributors where their membership has not vested, the transfer of funds to other pension plans, and the borrowing of funds by members from their Pension Plan account in limited circumstances. The Pension Plans are defined benefit schemes where the benefits paid to the relevant contributor are calculated based on a number of factors defined by statute, including the amount contributed, the number of years the person has contributed, and the age of the person drawing benefits. There are no benefits drawn from the Pension Plans to contributors and beneficiaries beyond those as prescribed above. The Commissioner accepts that the alternate circumstances of access to the funds, being incapacity, death, the transfer of funds to another retirement fund, the borrowing by members of contributions made, and a return of contributions in very limited circumstances, align to the contemplated contingencies of a provident, benefit, superannuation or retirement fund. All monies of the Pension Plans are amounts used solely for the purposes of administering and paying out benefits. Therefore, the Pension Plans satisfy this requirement. The Pension Plans were established in a foreign country Each of the Pension Plans was established in, and is a tax resident of a foreign country. Therefore, the Pension Plans satisfy this requirement. The Pension Plans were established and are maintained only to provide benefits for individuals who are not Australian residents Each of the Pension Plans was established in a foreign jurisdiction for its members, being employees of the public service. It is considered that the possibility of a very small number of members being returned residents or becoming Australian residents after ceasing eligible employment is incidental. Therefore, the Pension Plans will satisfy this requirement. Each of the Pension Plans' central management and control is carried on outside Australia by entities none of whom is an Australian resident 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 in respect of the central management and control (CM&C) of a superannuation fund: 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. Furthermore, paragraphs 10 and 11 of Taxation Ruling TR 2018/5 Income tax: central management and control test of residency (TR 2018/5) states: 10. Central management and control refers to the control and direction of a company's operations. It does not refer to a physical location in which the control and direction of a company is located and may ultimately be exercised in more than one location. 11. The key element in the control and direction of a company's operations is the making of high-level decisions that set the company's general policies and determine the direction of its operations and the type of transactions it will enter. The Pension Plans, together with the Fund, are pension schemes established and managed, through several of its agencies, by the government. Their operations are governed by statute, which the various legal instrumentalities and agencies are bound to follow in the performance of their duties. With each Pension Plan being a pension scheme for public service employees, a number of legal persons across the government have responsibility for various features of each Pension Plan. · The Board for each of the Pension Plans is responsible for the proper operation of the Pension Plan. · The State Treasurer and the Council are responsible for the development of investment policy in relation to the funds of the Pension Plans. · The Board of each Pension Plan by statute has assigned all functions, powers and duties relating to the investment or reinvestment of moneys of their respective fund to Entity A. · Entity B is assigned all administrative functions of the Pension Plans except for investment. Based on these facts, it is clear that all of the key functions of each of the Pension Plans are exercised in the foreign country, including the control and direction of each of the Pension Plans' investments, strategies, administration, and operations. As such it is reasonable to conclude that the central management and control of each of the Pension Plans is exercised in the foreign jurisdiction by entities that are not Australian residents. Therefore, the Pension Plans satisfy this requirement. No amount paid to the Pension Plans or set aside for the Pension Plans has been or can be deducted under the ITAA 1997 and no tax offset has been allowed or is allowable for such an amount An amount paid to the Pension Plans or set aside for the Pension Plans has not been and cannot be deducted under the ITAA 1997. A tax offset has not been allowed nor would be allowable for any amount paid to the Pension Plans or set aside for the Pension Plans. Therefore, the Pension Plans satisfy this requirement. The Pension Plans derive the relevant income In order to be excluded from withholding tax under paragraph 128B(3)(jb) of the ITAA 1936, the Pension Plans must derive the relevant interest and dividend income. This requires an examination of any interposed entities. This includes an examination of the relationship between the Pension Plans and the Fund, and what type of relationship this is for Australian tax purposes. In Harmer & Ors v FC of T 89 ATC 5180 , Justice French stated that a trust is notably a definition of a relationship by reference to obligations. His Honour went on to state that the four essential elements of a trust are: All four elements of a trust are present in the relationship between Entity A as trustee of the Fund, and the beneficiaries, being the Pension Plans. The Fund holds legal title to the investment assets held in Australia. Under the statute, the assets of the Fund are held for the benefit of the Pension Plans, and are used solely to meet the expenses of the Pension Plan. The trust property is the funds provided by the Pension Plans to Entity A, and the holding of this property is subject to a personal obligation on the trustee to deal with it in the best interests of the Pension Plans. Therefore, the relationship between Entity A and the Pension Plans constitutes a trust relationship. Income received by the Fund therefore is income of a trust estate. It must then be determined whether the Pension Plans derive the relevant income as presently entitled beneficiaries. Relevant to this analysis is subsection 128A(3) of the ITAA 1936 which provides: For the purposes of this Division, a beneficiary who is presently entitled to a dividend, to interest or to a royalty included in the income of a trust estate shall be deemed to have derived income consisting of that dividend, interest or royalty at the time when he or she became so entitled. It is noted there is difficulty in applying subsection 128A(3) of the ITAA 1936 to a non-resident trust estate such as this. In its purest form, subsection 128A(3) of the ITAA 1936 is intended to apply withholding tax to interest, dividends and royalty income of an Australian trust estate to which a non-resident beneficiary is presently entitled. Lindgren J commented on the policy rationale for this provision in ABB Australia Pty Ltd v FC of T 2007 ATC 4765 : 181. The Commissioner responds to this particular submission by suggesting that the purpose of s128A(3) is to catch a situation in which, while the beneficiary presently entitled is a non-resident, arrangements are made to ensure that the trustee is a resident: without the provision, ensuring that the trustee was a resident would provide a simple and straightforward means of escaping liability to withholding tax. ... 184. I accept the Commissioner's submission that s 128A(3) does not tell against the approach outlined above. But for that provision, a non-resident beneficiary presently entitled would not be within subs (1), (2), (2A) or (2B) of s128B where the trustee was a resident. The policy underlying s128A(3) is, as the Commissioner submits, to prevent circumvention of the withholding tax regime by the interposition of a resident trustee between the resident company and the non-resident beneficiary presently entitled. Notwithstanding the above, the Commissioner has accepted that subsection 128A(3) of the ITAA 1936 can apply to deem beneficiaries of non-resident trust estates to have derived the relevant income in limited circumstances. ATO Interpretative Decision ATO ID 2008/61 Withholding Tax Exemption: interest and dividends paid by an Australian resident and received by a Dutch Stichting as unitholder in an Irish Common Contractual Fund (ATOID 2008/61)is an example of this. In ATOID 2008/61, an Irish Common Contractual Fund (CCF) was found to be a trust for Australian income tax purposes. The terms of the deed stated that income of the CCF accrued to unitholders as it arose. As such, the unitholder had a present legal right to demand and receive payment of the income, and therefore was presently entitled to the dividend and interest income received by the CCF. The requirements in subsection 128A(3) were therefore satisfied, and subsequently the unitholder was deemed to have derived the income at the time when it became presently entitled. Being an entity entitled to be excluded from withholding tax under paragraph 128B(3)(jb) of the ITAA 1936, the unitholder was subsequently exempt from withholding tax on the amounts of relevant income it was presently entitled to. The amounts they were presently entitled to retained their character as dividends and interest respectively. As such, the critical factor is to determine whether the Pension Plans are 'presently entitled' to the income of the Fund. Present entitlement The requirement in subsection 128A(3) of the ITAA 1936 of present entitlement to a share of the dividend, interest or royalty income of the trust estate refers to a beneficiary's present vested right to demand and receive payment of the whole or part of what has been received by the trustee as income and, retaining that character in the trustee's hands, is legally available to be distributed to those entitled to it as beneficiaries of the trust. Having considered the circumstances of the Fund, the Pension Plans, and the underlying statutory framework, the Commissioner accepts that the Pension Plans are presently entitled to the interest and dividend income as it arises to the Fund. As such, for the purposes of Division 11A of the ITAA 1936 these amounts retain their character when the Pension Plans become presently entitled to those amounts. Therefore, the Pension Plans are deemed to have derived the relevant dividend and interest income for the purposes of Division 11A of the ITAA 1936. As such, the Pension Plans are considered to have derived dividend and interest income for the purposes of determining a withholding tax liability. As they have otherwise established their exclusion from withholding tax under paragraph 128B(3)(jb) of the ITAA 1936, this means that the Fund, and in turn the Pension Plans, will be excluded from dividend and interest withholding tax on amounts paid from Australian investments. Consists of interest or dividend and/or non-share dividends paid by a company that is a resident Paragraph 128B(3)(jb) of the ITAA 1936 will only apply to interest, or to dividends and non-share dividends paid by Australian resident companies to the Fund to which the Pension Plans are presently entitled. The Fund, with its presently entitled Pension Plan beneficiaries, will receive interest income from its Australian investments, along with dividend and non-share dividend income from companies who are residents of Australia for tax purposes. Therefore, the Pension Plans satisfy this requirement. Is exempt from income tax in the country in which the non-resident resides The Pension Plans is exempt from income tax in the USA under section 501(a) of the USA Internal Revenue Code as it is a State government body. Therefore, the Pension Plans satisfy this requirement. Subsection 128(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: i. The superannuation fund for foreign residents must satisfy the 'portfolio interest test' in relation to the test entity (subsection 128B(3CC) of the ITAA 1936) ii. The superannuation fund for foreign residents must not, at the time the income was derived, have influence of a kind described in subsection 128B(3CD) of the ITAA 1936 in relation to the test entity, and iii. The income cannot otherwise be non-assessable non-exempt income because of: a. Subdivision 880-C of the ITAA 1997, or b. Division 880 of the Income Tax (Transitional Provisions) Act 1997 . The Pension Plans satisfy 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. Subsection 128B(3CB) defines the test entity to be either the entity that paid the interest, dividends or non-share dividends or, if subsection 128A(3) of the ITAA 1936 applies in relation to a resident trust estate, that trust estate. Subsection 995-1(1) of the ITAA 1997 defines total participation interest to have the meaning given by section 960-180 of the ITAA 1997, which states: An entity's total participation interest at a particular time in another entity is the sum of: (a) the entity's *direct participation interest in the other entity at that time; and (b) the entity's *indirect participation interest in the other entity at that time. A 'direct participation interest' that the Pension Plan will have in a test entity is defined in the table in subsection 960-190(1) of ITAA 1997 and depends on what type of entity the other entity is. It is not relevant in this particular case as the Pension Plans hold the relevant Australian investments through the Fund. Subsection 960-185(1) of the ITAA 1997 provides that an entity's indirect participation interest in a test entity is established by multiplying its direct participation interest in an intermediate entity by the sum of the intermediate entity's direct and indirect participation interests in the test entity. The Fund has less than 1% of the total participation interest in each of the entities in which it invests. As such, the Fund and Pension Plans satisfy the requirement. The Pension Plans do not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936 in relation to the test entity at the time the income was derived Subsection 128(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 relevant investor 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. 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. The Fund only has portfolio investments of less than 1% of the membership interests in listed entities, none of which give it the power to appoint persons who may be involved in decisions comprising the control and direction of the test entity's operations. 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 Fund's Australian investments: a. Neither the Fund, nor any related party, has any involvement in the day to day management of the issuing entity's business. b. Neither the Fund, nor a related party, has any right to representation on the board of an equity issuer, including the board of the corporate trustee of a unit trust in which the Fund acquired units. c. Neither the Fund, nor a related party, has any right to representation on any investor representative or advisory committee (or similar) of any equity issuer. d. Neither the Fund, nor any related party, has the ability to direct or influence the operation of the issuing entity's business outside of the ordinary rights conferred by the equity interest held. e. The Fund, along with any related party, only has rights to vote as a shareholder or unitholder in proportion to their equity interest in the relevant entity. For the same reasons outlined above, there is nothing to suggest that a decision-maker 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. 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, and as such, neither do the Pension Plans. The income received by the Fund is not non-assessable and 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 income received by the Fund and the Retirement Systems 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 . As such, the income received by the Fund and Retirement Systems satisfies this requirement. | Detailed Reasoning - Conclusion: As all the requirements of paragraph 128B(3)(jb) of the ITAA 1936 are satisfied, each of the Pension Plans will be excluded from withholding tax under paragraph 128B(3)(jb) of the ITAA 1936 in relation to investments in Australia that they hold through the Fund from which they derive interest, dividend and non-share dividend income.

The trustee who holds a legal or equitable interest in the trust property. | The trust property which must be property capable of being held on trust and which includes a chose in action. | One or more beneficiaries other than the trustee. | A personal obligation on the trustee to deal with the trust property for the benefit of the beneficiaries, which obligation is also annexed to the property.