Private ruling: Superannuation fund for foreign residents - withholding tax exemption
Date of advice: 28 April 2022
Published: July 2022
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 income, and dividend and non-share dividend income paid by Australian resident companies derived from its Australian investments at the time when the investments are not on loan in accordance with paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes.

Relevant facts and circumstances: The Fund 1. The Fund was established in connection with the Plan pursuant to the Trust Agreement. 2. The Trust Agreement is made between the Plan Sponsor and the Trustee. 3. The Plan Sponsor is responsible for the administration of the Plan which provides pension and other benefits to its employees. All assets of the Plan are held in The Fund and all benefits of the Plan are provided for by The Fund. The Plan Sponsor has the exclusive right to manage The Fund in accordance with the provisions of the Plan and any applicable law. 4. The Plan Sponsor and the Trustee are both companies duly incorporated under the laws of the Foreign Country. 5. The Trust Agreement is governed by the laws of the Foreign Country. 6. The 'Property of The Fund' consists of the Property held pursuant to the Trust Agreement together with any earnings, profits, increments and accruals arising therefrom less any payments and disbursements. 7. The Fund is held by the Trustee in trust and applied by the Trustee in the manner and for the purposes provided in the Trust Agreement. 8. The Property of The Fund is kept distinct from the general assets of the Trustee and any sub-custodian, as well as from the assets of any person in the accounts and records kept by the Trustee. 9. The Fund is the beneficial owner of the Property of The Fund and the Trustee or appointed nominees permitted under the Trust Agreement hold title to all Property of The Fund for the account of The Fund. 10. The Trustee may resign or be removed as Trustee by the Plan Sponsor, in which case the Plan Sponsor will appoint a new trustee. 11. The Trust Agreement may be amended or terminated at any time by written agreement signed by the Trustee and the Plan Sponsor. The Trust Agreement will also terminate in its entirety where there is no asset included in The Fund or where all of the Property of The Fund is distributed. 12. Upon termination of the Trust Agreement, the Property of The Fund shall be distributed as directed by the Plan Sponsor or its designee, subject to approval and other requirements under applicable pension legislation. Investment of The Fund 13. The Trustee holds, invests and reinvests the Property of The Fund strictly in accordance with the Instructions of the Plan Sponsor or any Investment Manager appointed by the Plan Sponsor. 14. The Plan Sponsor may appoint one or more investment managers (Investment Manager) to manage the investment of The Fund and to direct the Trustee in the exercise of its powers, or as the Plan Sponsor may otherwise specify. 15. It is the sole responsibility of the Plan Sponsor to determine that all transactions entered into by the Trustee are permitted by and in compliance with applicable legislation and the Policies and Procedures applicable to the Plan. 16. Custody of foreign investments is maintained with foreign custodians selected by the Trustee. Powers of the Trustee 17. Under the Trust Agreement, the Trustee is vested with all powers, rights and authorities necessary or desirable to enable the Trustee to administer The Fund and carry out its obligations under the Trust Agreement. 18. Upon the instruction of the Plan Sponsor or an Investment Manager, the Trustee has full power and authority to: a. undertake all activities associated with investing in securities or other property permitted under the Trust Agreement b. commence, defend, adjust or settle legal proceedings in connection with The Fund c. borrow money against the Property of The Fund where it is required for the payment of benefits under the Plan d. deal in derivative products and enter into derivative contracts and transactions e. purchase, hold and sell gold, silver and other precious metals, and f. hold portions of The Fund in cash and retain the cash balances on deposit with itself or any of its affiliates or with a chartered bank or other depository, in call deposits of the Foreign Country. 19. The Trustee also has full power and authority to: a. hold any part of the Property of The Fund in cash without liability to account for any profit to the Plan Sponsor pending investment thereof or the payment of expenses or making of distributions b. deposit any Property of The Fund, including securities and documents of title, with any bank or other depository, including itself or any of its affiliates, and c. participate in a securities lending program pursuant to a lending agreement between the Plan Sponsor and the Trustee or affiliate of the Trustee. The Plan 20. The primary purpose of the Plan is to provide lifetime periodic payments to Members and other individuals entitled to a benefit under the Plan in respect of each Member's period of employment, up to retirement, termination or death. 21. The Administrator is responsible for the general administration of the Plan and performs all administrative functions that have not been allocated to the Board of Directors of the Plan Sponsor, the Trustee or the Actuary. 22. It is the intention that the Plan be indefinitely continuing, however the Plan Sponsor reserves the right to amend or terminate the Plan at any time provided that any amendment or termination is not contrary to the terms of any applicable laws and is approved by the appropriate regulatory authorities. 23. If the Plan is terminated, all assets held in The Fund shall be applied for the benefit of the Members, Former Members, Pensioners, their spouses, eligible children and beneficiaries entitled to benefits under the Plan. 24. In respect of The Fund, the Plan sets out the following: a. All assets of the Plan are to be held in The Fund under the terms of the Trust Agreement, and the benefits of the Plan shall be provided by The Fund in accordance with the provisions of the Plan. b. The Fund and earnings derived thereon are to be used exclusively for the payment of benefits provided by the Plan except in the following circumstances: i. Payment of Employer Contributions to The Fund ii. Usage permitted in event of surplus funds c. The Administrator may pay from The Fund any reasonable expenses associated with the administration and operation of the Plan and The Fund. d. The management of The Fund is the exclusive prerogative of the Administrator, subject to the Plan and any applicable laws. e. The investment of The Fund shall be limited to the securities and loans permitted under the Foreign Country's pension laws and income tax laws. 25. Any surplus of the Plan funds cannot be refunded to the Plan Sponsor while the Plan is ongoing and can only be applied in the following manner: a. to account for future Employer contributions b. retained as a contingency reserve, and/or c. to improve benefits for Members. 26. Members of the Plan are employees of the Plan Sponsor who have joined the Plan and whose membership has not been terminated as a result of reaching their Date of Cessation of Employment. 27. None of the participants of the Plan are employed in Australia nor are they Australian residents. 28. Each Member contributes to the Plan as required by the Plan and based on the advice of the Actuary. 29. Benefits available to Members under the Plan are: a. Normal Retirement Benefit. b. Early Retirement Benefit. c. Income Smoothing Benefits. d. Death Benefits. e. Disability Benefits. 30. In limited circumstances, the Plan also allows Members to receive a lump sum payment in lieu of any further payment or benefit, or transfer the value of their pension to another registered retirement vehicle, subject to the Foreign Country's income tax laws. Australian Investments of The Fund 31. The Fund is the beneficial owner of the Australian investments relevant to this ruling. 32. The Fund has and will derive interest income, and dividend income paid by Australian resident companies in respect of the Australian investments relevant to this private ruling. 33. This ruling does not apply to income derived in respect of the Australian investments at any time the asset is or was on loan. 34. In respect of each of the Australian investments to which The Fund has invested: a. The Fund holds less than 1% of the total participation interests in each entity and has never held more than a 10% interest. b. The Fund holds less than 10% of the total participation interests in each entity in the circumstances detailed in paragraph 128B(3CC)(c) of the ITAA 1936. c. Neither The Fund, nor any related part of The Fund, has involvement in the day to day management of the business of any of the Australian entities it has invested in. d. Neither The Fund, nor any related party of The Fund, holds any right to appoint a person to a board, committee or similar, either directly or indirectly, of any of the Australian entities it has invested in. e. Neither The Fund, nor any related party of The Fund, holds the right to representations on any investor representative or advisory committee (or similar) of any of the Australian entities it has invested in. f. Neither The Fund, nor any related part of The Fund, has the ability to direct or influence the operation of any of the Australia investments outside of the ordinary rights conferred by the equity interest held. g. The Fund has not entered into or received any side letters, arrangements or agreements in respect of its investments in the Australian entities. h. The Fund does not hold any veto rights on security holder votes in respect of its investments in the Australian entities. Other Information 35. The Fund is considered a resident of the Foreign Country for income tax purposes and is exempt from tax in the Foreign Country. 36. The Administrator of the Plan has confirmed the following in respect of The Fund: a. it is an indefinitely continuing retirement fund b. it was established in a foreign country c. it was established and maintained only to provide benefits for individuals who are/were employees of the Plan Sponsor, more than 99% of whom are residents of the Foreign Country d. its central management and control is carried on outside of Australia by entities none of whom is an Australian resident e. an amount paid to or set aside for The Fund cannot be deducted under the Income Tax Assessment Act 1997 (ITAA 1997) or ITAA 1936 f. no tax offsets would be allowable for an amount paid to The Fund or set aside for The Fund g. the income of The Fund is not non-assessable non-exempt income of The Fund because of either: i. Subdivision 880-C of the ITAA 1997, or ii. Division 880 of the Income Tax (Transitional Provisions) Act 1997.

Relevant legislative provisions: Income Tax Assessment Act 1936 paragraph 128B(3)(jb)

Reasons for decision: Summary: Section 128B of the ITAA 1936 imposes liability to withholding tax on income derived by a non-resident that consists of dividend income (subsection 128B(1) of the ITAA 1936), interest income (subsection 128B(2) of the ITAA 1936) and other income as prescribed in that section. Broadly, subsection 128B(3) of the ITAA 1936 provides an exclusion to the liability to withholding tax arising at section 128B of the ITAA 1936. Specifically, paragraph 128B(3)(jb) of the ITAA 1936 notes that the liability to withholding tax at section 128B of the ITAA 1936 will not apply to: (jb) income that: (i) is derived by a non-resident that is a superannuation fund for foreign residents; and (ii) consists of interest, or consists of dividends or non-share dividends paid by a company that is a resident; and (iii) is exempt from income tax in the country in which the non-resident resides; Subitem 3(1) of Part 2 of Schedule 3 of Treasury Laws Amendment (Making Sure Foreign Investors Pay Their Fair Share of Tax in Australia and Other Measures) Act 2019 (2019 Act) provides (subject to subitems (2) and (3)) that for income derived from 1 July 2019, the extra requirements in subsection 128B(3CA) of the ITAA 1936 must also be met for the exclusion at paragraph 128B(3)(jb) of the ITAA 1936 to apply. These requirements are considered below. The Fund is a non-resident The Fund is not a resident of Australia for income tax purposes. The Fund was established in the Foreign Country and is considered a resident of the Foreign Country for income tax purposes. Therefore, The Fund satisfies this requirement. The Fund is a 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 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 Fund to be considered a superannuation fund for foreign residents for the purposes of paragraph 128B(3)(jb) of the ITAA 1936, it must be established that: • the Fund is an indefinitely continuing fund • the Fund is a provident, benefit, superannuation or retirement fund • the Fund was established in a foreign country • the Fund was established and is maintained only to provide benefits for individuals who are not Australian residents • the central management and control of the Fund is carried on outside of Australia by entities none of whom are Australian residents • no amount paid to the Fund or set aside for the Fund 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 Fund or set aside for the Fund. The Fund 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, www.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 The Plan has been continuing since XXXX. The Plan Sponsor has the right to terminate the Plan at any time, provided it is in accordance with applicable laws and is approved by the appropriate regulatory authorities. However, it is stated in the Plan that the intention is for the Plan to be indefinitely continuing. The Fund was established in connection with the Plan, and all assets of the Plan are held in The Fund pursuant to the Trust Agreement. The Trust Agreement can be terminated at any time, either by agreement between the Trustee and the Plan Sponsor or in circumstances where there are no assets included in The Fund or all of the assets have been distributed in accordance with the Trust Agreement. There is no indication that the Plan or The Fund are to be terminated or wound up. Members of the Plan and the Plan Sponsor are required to make ongoing contributions to The Fund under the terms of the Plan. There is sufficient evidence to accept that The Fund will continue indefinitely in connection with the Plan to provide pension benefits to the Members of the Plan. Furthermore, the Administrator of the Plan has provided a letter to the Commissioner confirming that The Fund is an indefinitely continuing retirement fund. Therefore, The Fund satisfies this requirement. The Fund 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 primary purpose of the Plan is to provide lifetime periodic payments to Members and other individuals entitled to a benefit under the Plan in respect of each Member's period of employment, up to retirement, termination or death. The Fund was established in connection with the Plan and the Plan sets out that all assets of the Plan are to be held in The Fund under the terms of the Trust Agreement. Benefits payable under the Plan are to be provided by The Fund in accordance with the provisions of the Plan. The Plan sets out that The Fund and its earnings are to be used exclusively for the payment of the benefits provided by the Plan. Furthermore, surplus funds of the Plan may not be refunded to the Plan Sponsor, instead the Plan Sponsor can only apply the surplus to account for future employer contributions, to be retained as a contingency reserve and/or to improve benefits for Members. The plan is divided into three parts providing benefits to Members in the following circumstances: In limited circumstances, the Plan also allows Members to receive a lump sum payment in lieu of any further payment or benefit, or transfer the value of their pension to another registered retirement vehicle, subject to the Foreign Country's income tax laws. The Commissioner accepts that the alternate circumstances of access to the funds, being incapacity, death, the transfer of funds to another retirement fund, and a cash refund of the commuted value in exceptional circumstances align to the contemplated contingencies of a provident, benefit, superannuation or retirement fund. Therefore, The Fund satisfies this requirement. The Fund was established in a foreign country The Fund was established in and is a tax resident of the Foreign Country. Therefore, The Fund satisfies this requirement. The Fund was established and maintained only to provide benefits for individuals who are not Australian residents The Fund has been established in connection with the Plan and all of the assets and earnings of The Fund are to be used exclusively for the payment of the benefits provided by the Plan. It has been confirmed in a statement provided by the Administrator that The Fund was established and is maintained only to provide benefits for individuals who are or were employees of the Plan Sponsor. The Administrator has confirmed that none of the participants in the Plan, and therefore beneficiaries of The Fund, are Australian employees or residents of Australia. 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 and should not be taken to conclude that The Fund, in this case, has not been established and is not maintained only to provide benefits for non-residents, based on the rules and operation of the Plan and The Fund. Therefore, The Fund satisfies this requirement. The Fund's 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 Fund is a resident in the Foreign Country for tax purposes and is exempt from income tax in the Foreign Country. The Fund was established in connection with the Plan, both the Plan Sponsor and Trustee of The Fund are companies duly incorporated under the laws of the Foreign Country. The Plan states that the management of The Fund is the exclusive prerogative of the Plan Sponsor as the Administrator of the Plan, subject to conditions of the Plan. The Trust Agreement is governed by the laws of the Foreign Country. The Plan Sponsor has the ability to appoint and remove Trustees of The Fund. The Fund holds, invests and reinvests assets of The Fund strictly in accordance with the instructions of the Plan Sponsor, as the Administrator of the Plan, or any Investment Manager appointed by the Plan Sponsor. Under the Trust Agreement, the Plan Sponsor directs The Fund in respect of distributions from The Fund. The powers and authorities of the Trustee under the Trust Agreement are undertaken in accordance with the instructions of the Plan Sponsor or any Investment Manager appointed by such. It is also the sole responsibility of the Plan Sponsor to determine that all transactions entered into by the Trustee pursuant to direction are permitted by and in compliance with applicable legislation of the Foreign Country and the Policies and Procedures applicable to the Plan. Furthermore, in a statement made by the Administrator of the Plan, The Fund's central management and control was confirmed to be carried on outside of Australia by entities none of whom is an Australian resident. Therefore, The Fund satisfies this requirement. No amount paid to The Fund or set aside for The Fund 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 Fund or set aside for The Fund 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 Fund or set aside for The Fund. Therefore, The Fund satisfies this requirement. The Fund derives income that consists of interest, consists of dividend and/or non-share dividend paid by a company that is a resident Paragraph 128B(3)(jb) of the ITAA 1936 will only apply to income derived by The Fund if it consists of interest or consists of dividends and/or non-share dividends paid by Australian resident companies. The Fund has and will derive income that consists of interest and consists of dividends paid by Australian resident companies in respect of its Australian investments. Therefore, The Fund satisfies this requirement. Is exempt from income tax in the country in which the non-resident resides The Fund is exempt from tax in the Foreign Country. Therefore, The Fund satisfies this requirement. Subsection 128B(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 Fund satisfies 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. The Fund holds or held less than 1% of the total participation interests in each Australian Investment. Further, The Fund would hold less than 10% of the total participation interests in each Australian investment in the circumstances detailed in paragraph 128B(3CC)(b) of the ITAA 1936. The Fund therefore satisfies the 'portfolio interest test' in respect of its Australian investments. The Fund does 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 128B(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 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) 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. The directions, instructions or wishes of The Fund may be expressed either directly or indirectly, or through The Fund acting in concert with others. The phrase 'at least one of the persons' is a reference to the persons (from paragraph 128B(3CD)(a)) 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. Relevantly, in respect of each of the Australian entities to which The Fund has invested in: a) Neither The Fund, nor any related part of The Fund, has involvement in the day to day management of the business of any of the Australian entities it has invested in. b) Neither The Fund, nor any related party of The Fund, holds any right to appoint a person to a board, committee or similar, either directly or indirectly, of any of the Australian entities it has invested in. c) Neither The Fund, nor any related party of The Fund, holds the right to representations on any investor representative or advisory committee (or similar) of any of the Australian entities it has invested in. d) Neither The Fund, nor any related part of The Fund, has the ability to direct or influence the operation of any of the Australia investments outside of the ordinary rights conferred by the equity interest held. e) The Fund has not entered into or received any side letters, arrangements or agreements in respect of its investments in the Australian entities. f) The Fund does not hold any veto rights on security holder votes in respect of its investments in the Australian entities. Therefore, the Commissioner accepts that The Fund does not have influence of a kind described in subsection 128B(3CD) of the ITAA 1936. 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 is not and 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 . Therefore, The Fund satisfies this requirement. | Detailed Reasoning - Conclusion: Having regard to the requirements of paragraph 128B(3)(jb) of the ITAA 1936, The Fund is excluded from liability to withholding tax on interest, dividend and non-share dividend income derived from Australian resident companies in respect of The Fund's Australian investments at the time when the investments are not on loan.

Death and Disability Benefit