Private ruling: Exemption from withholding tax for a foreign superannuation fund
Date of advice: 12 April 2021
Published: June 2021
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the Fund excluded from liability to withholding tax on interest, dividend and non-share dividend income in respect of the Public Investments (listed in the relevant facts and circumstances of this Ruling), under paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes

Relevant facts and circumstances: The Fund The Fund is a contributory defined benefit pension plan co-sponsored by a government agency. Contributions are made by active members of the Fund and by the Employer on behalf of the active members. An amount paid to the Fund or set aside for it has not been or cannot be deducted under the ITAA 1997; and a tax offset has not been allowed or is not allowable, for such an amount. The Fund directly holds a number of equity investments in different entities listed on the Australian Securities Exchanges. The Board The Board is the administrator of the Fund. The central management and control of the Fund is carried on outside Australia by individuals none of whom is an Australian resident. Equity and benefits The plan supports XXXX working and retired teachers. A retirement pension is available based on the number of years of credited service, the average of the best five annual salaries and the age of the member at retirement. A member is eligible for a reduced retirement pension from age 50. An unreduced retirement pension is available from age 65 or when the sum of a member's age and qualifying service equals 85 if earlier. A disability pension is available at any age to a member with a minimum of 10 years of qualifying service, the type of disability pension is determined by the extent of the disability. Death benefits are available on the death of an active member and may be available on the death of a retired member. The benefit may take the form of a survivor pension, lump-sum pension or both. Leaving the employer If an employee stops working for the employer before they are eligible to collect a pension, they can: • Leave their accumulated benefits in the plan to collect as a pension when they reach retirement age; • Transfer the commuted value of the pension to another retirement savings arrangement; or • Transfer their pension credit to another pension plan with which the Fund has a transfer agreement. Investments in Australia The Fund provided a list of investments in Australia. Equity characteristics All investments in Australia are listed on the ASX with a total participation interest in respect of each investment being below 10%. The Fund holds no rights to appoint a person to a board, committee or similar, either directly or indirectly. The Fund has not entered into, or received, any side letters, arrangements or agreements. The Fund holds no veto rights on security holder votes. The Fund does not have influence of a kind described in subsection 128(3CD) of the ITAA 1936 in respect of these equity investments. The Fund does not have capacity to influence (either directly or indirectly) the day to day management of the operations of its investments. No amount paid to the Fund can be deducted under the Income Tax Assessment Act 1997 (ITAA 1997) or the ITAA 1936. No tax offsets would be allowable for an amount paid to the Fund or set aside for the fund. The income of the Fund is not non-assessable non-exempt income of the Fund because of either Subdivision 880-C of the ITAA 1997 or Division 880 of the Income Tax (Transitional Provisions) Act 1997 .


Reasons for decision: Summary: The requirements of paragraph 128B(3)(jb) of the ITAA 1936 are satisfied. The Fund is excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from its Australian investments under paragraph 128B(3)(jb) of the ITAA 1936. | 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 resides. Further, from 1 July 2019, the extra requirements in subsection 128B(3CA) of the ITAA 1936 must also be met. | Detailed Reasoning - Superannuation fund 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 subsections 995-1(1) of the ITAA 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 provides: (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 in a foreign country; 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. The Fund must be a 'fund' that satisfies all of the conditions in subsection 118-520(1) of the ITAA 1997 (and none of the paragraphs in subsection 118-520(2) of the ITAA 1997) to be a 'superannuation fund for foreign residents'. | Detailed Reasoning - 1. An indefinitely continuing fund: The term 'indefinitely continuing fund' is not defined in either the ITAA 1997 or the ITAA 1936. The general view is that this does not mean that the fund must continue forever, but rather that the governing rules should not fix an express termination date. Further, The Fund does not provide for winding up at a defined point in time. On that basis, the Fund is an indefinitely continuing fund. Therefore, the Fund will satisfy this requirement. | Detailed Reasoning - 2. A provident, benefit, superannuation or retirement fund: The phrase 'provident, benefit, superannuation or retirement fund' under subparagraph 118-520(1)(a)(ii) of the ITAA 1997 is not defined in either the ITAA 1997 or the ITAA 1936. ATO Interpretative Decision ATO ID 2009/67 Income Tax: Superannuation fund for foreign residents (ATO ID 2009/67) provides 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). The above extract 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). In this case, The Fund is a fund arranged for the benefit of eligible employees. The only circumstances in which members of the Fund (or their relatives) may directly receive benefits or payments from the fund prior to being at least 50 years old (where a member is eligible for a reduced retirement pension) or 65 or when the sum of the member's age and qualifying service equals 85 (for an unreduced pension) are where a member: a) is unable to work due to disability; or b) dies; Therefore, the Fund has a purpose of providing a pool of assets for use by employees only on their retirement, death or contemplated contingencies such as being unable to work. These benefits align with the sole purpose of providing retirement benefits or benefits in other allowable contemplated contingencies. Therefore, the Fund satisfies this requirement. | Detailed Reasoning - 3. Established in a foreign country.: The Fund was established in a foreign country. Therefore, the Fund satisfies this requirement. | Detailed Reasoning - 4. Was established and maintained only to provide benefits for individuals who are not Australian residents.: The Fund was established and is maintained only to provide benefits to employees of the Company. These employees reside in the foreign country. Therefore, the Fund satisfies this requirement. | Detailed Reasoning - 5. Central management and control (CM&C): 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: 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. The Fund, a corporation without share capital which was created under statute to be the administrator of the Fund, was established and is maintained in the foreign country. The Fund's central management and control is carried on outside Australia by entities (none of whom is an Australian resident). Therefore, the Fund satisfies this requirement. | Detailed Reasoning - 6. Subsection 118-520(2): The Fund has not and cannot deduct amounts under either the ITAA 1997 or the ITAA 1936 for amounts paid to it. Therefore, the Fund satisfies these requirements. | Detailed Reasoning - 7. Conclusion: As all of the above requirements are satisfied, the Fund meets the requirements of being a superannuation fund for foreign residents as defined by section 118-520 of the ITAA 1997. | Detailed Reasoning - The Fund is exempt from income tax in the country in which the non-resident resides: In the circumstances, the Commissioner is satisfied that the Fund 'resides' in a foreign jurisdiction for the purposes of subparagraph 128B(3)(jb)(iii) of the ITAA 1936. The Fund is also exempt from direct taxation, including income tax, in its home country pursuant to that country's tax laws. Therefore, the Fund satisfies this requirement. | Detailed Reasoning - Subsection 128B(3CA):: 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) to apply. Generally, these extra requirements apply to income derived from 1 July 2019. Relevantly: • The Fund must satisfy the 'portfolio interest test' in relation to the test entity (subsection 128B(3CC) • The Fund must satisfy the 'influence test' (subsection 128B(3CD) in relation to the test entity, and • The income cannot otherwise be non-assessable non-exempt income of the Fund because of: a. Subdivision 880-C of the ITAA 1997, or b. Division 880 of the Income Tax (Transitional Provisions) Act 1997. | Detailed Reasoning - 1. The Fund satisfies the 'portfolio interest test': Subsection 128B(3CC) 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. As per the facts, OTPP does not hold more than 10% ownership of any of the entities listed in the 'Australian Investments' section. Furthermore, OTPP's Australian Investments also meet certain 'Equity Characteristics' as listed. In these circumstances, the Commissioner is satisfied that the total participation interest the Fund holds in the test entities: • Is less than 10% pursuant to paragraph 128B(3CC)(a) at all relevant times; and • Would be less than 10% in the circumstances detailed in paragraph 128B(3CC)(b) at all relevant times. The Fund therefore satisfies the 'portfolio interest test' in respect of its Australian investments listed in the relevant facts of this Ruling. | Detailed Reasoning - 2. The Fund satisfies the 'influence test': Subsection 128(3CD) 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), assesses whether the Fund 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. This includes situations where the Fund is able to act in concert with others to determine the identity of a relevant decision-maker in the test entity. 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. Sub-test 2 of the influence test, as contained in paragraph 128B(3CD)(b), 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 investments listed in the relevant facts of this ruling: • Neither the Fund, nor any related party, is involved in the day to day management of the business of any of the Australian companies or trusts; • Neither the Fund, nor any related party, has the right to appoint a director to the Board of Directors of the Australian company, Australian debt issuer or equivalent role in a trust; • Neither the Fund, nor any related party, holds the right to representation on any investor representative or advisory committee (or similar) of the Australian companies or trusts; • Neither the Fund, nor any related party, has the ability to direct of influence the operation of the Australian companies or trusts outside of the ordinary rights conferred by the equity interest held; • The Fund only holds rights to vote in proportion to its equity interest in each Australian company or trust. Accordingly, the Fund does not have influence of a kind described in subsection 128(3CD) of the ITAA 1936 in respect of these equity investments. The Fund does not have capacity to influence (either directly or indirectly) the day to day management of the operations of their equity investments. Consequently, the Commissioner accepts that the Fund does not have influence of a kind described in subsection 128B(3CD). | Detailed Reasoning - 3. Otherwise non-assessable non-exempt: Section 128D of the ITAA36 provides the following: "Income other than income to which section 128B applies by virtue of subsection (2A), (2C) or (9C) of that section upon which withholding tax is payable, or upon which withholding tax would, but for paragraph 128B(3)(ga), (jb) or (m), section 128F, section 128FA or section 128GB, be payable, is not assessable income and is not exempt income of a person." Income derived by the Fund would not be otherwise treated as not assessable and not exempt income by virtue of the above provisions. Accordingly, the above exclusion should not apply to exclude the Fund from entitlement to the withholding tax exemption for superannuation funds for foreign residents. | Detailed Reasoning - Conclusion: The Fund is excluded from withholding tax in relation to interest, dividend and non-share dividend income derived from its current investments acquired both before and after 27 March 20XX in Australia as listed in the facts.