Private ruling: Foreign superannuation fund
Date of advice: 26 March 2020
Published: May 2020
Ruling period: Income year ending 30 June 2020
Date scheme commenced: 1 July 2019

Ruling: Q1: Is the Fund a 'foreign superannuation fund' for the purposes of the Income Tax Assessment Act 1997 ? | A1: Yes

Relevant facts and circumstances: 1. The Fund is based overseas. 2. The Fund was established by a trust deed (the Trust Deed) made between the principal employer and the Trustee. The Trust Deed was executed during the 2018-19 income year. The Trust Deed has not been added to or varied. 3. The principal employer is a company incorporated overseas, with its registered office overseas. 4. The Trustee is a company incorporated and resident overseas. The Trustees registered office is overseas, all directors are foreign residents and the ownership of 100% of its shares is by a overseas company. 5. The Trustee's director meetings are conducted overseas. 6. The managers appointed by the Trustee to manage the Fund's assets are located overseas. 7. The Trustee wishes to target and offer fund membership to 'globally mobile' expatriates, executives and entrepreneurs working overseas who are Australian residents or ex-Australian residents who may eventually return to live permanently in Australia or who may have never resided in Australia but wish to retire and live in Australia at some point. JTC wishes to offer fund membership to employees of Australian public companies and their subsidiaries and affiliates working outside Australia. 8. Target employees will become ordinary members of the Fund and each of them will have their own separate accumulation account. Any individual wishing to become an ordinary class member of the Fund will be required to complete and submit a member application form for the Fund. Any employer contributor for any target employees will be required to complete and submit a participating employer pack. It is envisaged that no target employees will become discretionary class members. 9. Contributions made to the Fund by any Australian employers do not and will not include any mandatory superannuation contributions for Australian superannuation guarantee charge purposes. 10. As at 30 June 2019 the Fund had no assets under management. You state that any assets of the Fund will not be located in Australia. 11. The information provided indicates that the Fund is established and maintained solely for the purpose of providing superannuation benefits for members in the event of their retirement or in certain circumstances, for the dependants of the members. 12. Members of the Fund can only access their benefits in the Fund at retirement upon reaching a prescribed age or by reason of disablement.

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: 1. The Fund is a foreign superannuation fund for Australian income tax purposes. | Detailed Reasoning - Meaning of 'foreign superannuation fund': 2. 'Superannuation fund' is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) as having the meaning given by section 10 of the Superannuation Industry (Supervision) Act 1993 (SISA). 3. In accordance with subsection 10(1) of the SISA, superannuation fund means: 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. 4. The High Court examined both the terms superannuation fund and fund in Scott v Commissioner of Taxation of the Commonwealth (No.2) (1966) 10 AITR 290; (1966) 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 benefits of its employees except that it must be 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. | Detailed Reasoning - Meaning of 'provident, benefit, superannuation or retirement fund': 5. The issue of what constitutes a provident, benefit, superannuation or retirement fund was discussed by the Full Bench of the High Court in Mahoney v Federal Commissioner of Taxation (1967) 41 ALJR 232; (1967) 14 ATD 519 ( Mahoney ). 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. 6. 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. 7. In accordance with section 62 of the SISA, a regulated superannuation fund must be 'maintained solely' for one or more of the 'core purposes'; or one or more of the 'core purposes' and one or more of the 'ancillary purpose', namely for the provision of benefits to a member on or after: · the member's retirement from any business, trade, profession, vocation, calling, occupation or employment in which they were engaged; or · the member attaining the age specified in the regulations; or · the member's death (this may require the benefits being passed on to a member's dependents or legal representative); or · the termination of the member's employment with an employer who had, at any time, contributed to the fund in relation to the member; or · the member's cessation of work for gain or reward on account of ill-health. 8. 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. | Detailed Reasoning - Foreign superannuation fund: 9. A foreign superannuation fund is defined in subsection 995-1(1) of the ITAA 1997 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. 10. Subsection 295-95(2) of the ITAA 1997 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. 11. The Commissioner's interpretation of the definition of 'Australian superannuation fund' in subsection 295-95(2) of the ITAA 1997 is given in 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). 12. In accordance with paragraph 2 of TR 2008/9, there are three tests that a fund must satisfy in order to be treated as an 'Australian superannuation fund' as defined in subsection 295-95(2) of the ITAA 1997. They are: · fund is established in Australia or any asset of the fund is situated in Australia; · central management and control of the fund is 'ordinarily' in Australia; and · the 'active member' test. 13. The three tests must be satisfied at the same time. If a fund fails to satisfy any one of the tests at a particular time it is not an Australian superannuation fund at that time, even if the other tests are met. 14. The information provided indicates that the Fund is established and maintained solely for the purpose of providing superannuation benefits for members in the event of their retirement or in certain circumstances, for the dependants of the members. In addition, members of the Fund can only access their benefits in the Fund at retirement upon reaching a prescribed age or by reason of disablement. As such, the Fund would meet the definition of a superannuation fund. 15. In addition, it is clear that the Fund is established outside of Australia and its central management and control is outside of Australia. Therefore, on the basis of information provided, we consider that the Fund is a foreign superannuation fund.