Private ruling: Foreign superannuation fund
Date of advice: 6 August 2018
Published: September 2018
Ruling period: Income year ended 30 June 2018 | Income year ending 30 June 2019 | Income year ending 30 June 2020
Date scheme commenced: 1 July 2017

Ruling: Q1: Is the retirement pension plan a foreign superannuation fund for Australian tax purposes? | A1: Yes

Relevant facts and circumstances: The retirement pension plan (the Plan) is a retirement plan based in an overseas country. The Plan’s members comprise mobile expatriate executives of companies with international operations. The Plan’s members work in, or have retired to, various countries around the world. The Plan was established outside Australia in an overseas country and the trustee of the Plan is a resident of that overseas country. There were no Australian assets at the time the Plan was established. At all times the central management and control of the Plan was outside Australia. At no time has the trustee been an Australian tax resident. The Plan is subject to the governing law of the overseas country. The amounts held in the Plan consist of all contributions of money or property made by members and participating employers and include all income profits and accretions whether arising from investments or not and any cash or assets transferred to the Plan under the terms of the trust deeds. According to the Plan’s definitive trust instrument, the sole purpose of the Plan is the provision of superannuation benefits for the Plan’s members and their dependants. The trustee’s power to amend the trust deed does not extend to this sole purpose provision. According to the rules of the Plan, payments can only be made from the Plan when the member reaches normal retirement age or in the special circumstances such as incapacity, early retirement and death.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 295-95(2) | Income Tax Assessment Act 1997 subsection 995-1(1) | Superannuation Industry (Supervision) Act 1993 section 10 | Superannuation Industry (Supervision) Act 1993 section 19 | Superannuation Industry (Supervision) Act 1993 section 62

Reasons for decision: Summary: On the basis of the information provided, the Commissioner considers the Plan to be a foreign superannuation fund for Australian income tax purposes. | Detailed Reasoning - Foreign superannuation fund: The meaning of a foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 as a superannuation fund that is not an Australian superannuation fund. Relevantly, in accordance with subsection 295-95(2) of the ITAA 1997, 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 … Based on the above, a superannuation fund or scheme 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. In accordance with subsection 995-1(1) of the ITAA 1997, the term superannuation fund has the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA) which states: Superannuation fund means: (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. Thus, a provident, benefit, superannuation or retirement fund that is established outside of Australia and has its central management and control outside of Australia would qualify as a foreign superannuation fund . | Detailed Reasoning - Provident, benefit, superannuation or retirement fund: The High Court examined what it means to be a ‘provident, benefit, superannuation or retirement fund’ in Scott v. Federal Commissioner of Taxation (No. 2) (1966) 10 AITR 290; (1966) 40 ALJR 265; (1966) 14 ATD 333 and in Mahony v. Federal Commissioner of Taxation (1967) 41 ALJR 232; (1967) 14 ATD 519. It was held that such a fund meant: ● Money (or investments) set aside and invested, with the surplus income being capitalised; ● For 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.’ In accordance with section 62 of the SISA ( Sole purpose test ), a regulated superannuation fund must be maintained solely for the provision of benefits specified in subsection 62(1) of the SISA. The ‘core purposes’ specified in that subsection relate to providing retirement or death benefits for, or in relation to, fund members; and the ‘ancillary purposes’ relate to the provision of benefits on the cessation of a member's employment and other approved benefits. Notwithstanding that the SISA does not apply to foreign superannuation funds, 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 , 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. The documentation provided in this case indicates that the Plan only pays benefits to its members on retirement, death or invalidity and thus would meet the definition of a superannuation fund. The Plan is established outside of Australia with its central management and control outside of Australia. Therefore, on the basis of the information provided, the Commissioner considers the Plan to be a foreign superannuation fund as defined by subsection 995-1(1) of the ITAA 1997.