Private ruling: Foreign pension fund and exemption from withholding tax
Date of advice: 17 July 2015
Published: July 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019
Date scheme commenced: 1 July 2014

Ruling: 1. Is the trustee of the fund excluded from liability to withholding tax on its interest and/or dividend income derived from Australia under paragraph 128B(3)(jb) of the ITAA 1936? | Yes. | 2. Is interest and/or dividend income derived from Australia by the trustee of the fund not assessable income of the fund under section 128D of the ITAA 1936? | Yes.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The applicant has applied for a private ruling for a fund for foreign residents. The fund was established to provide medical health and welfare benefits to employees covered by the fund. The application includes the following documentation: • Letter from the foreign tax authorities stating the fund was exempt from income tax in that country. • A copy of the Trust deed and the rules of the fund which provide details of the establishment of the fund, the benefits provided by the fund, and the rules governing the fund. • A statement from the trustee of the fund confirming that: • the fund is an indefinitely continuing fund and 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 Australia by entities none of whom is an Australian resident, • an amount paid to the fund or set aside for the fund 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. • A copy of the financial statements of the fund. • The pension plan allows for health benefits to be paid to its' members.

Relevant legislative provisions: Income Tax Assessment Act 1936 Paragraph 128B(3)(jb). | Income Tax Assessment Act 1936 Section 128D . | Income Tax Assessment Act 1997 Section 118-520.

Reasons for decision: Summary: Section 128D of the Income Tax Assessment Act 1936 (ITAA 1936) provides that interest and dividend income that is excluded from withholding tax pursuant to paragraph 128B(3)(jb) of the ITAA 1936 is not assessable income. For the financial years ended 30 June 2008 and onwards, paragraph 128B(3)(jb) of the ITAA 1936 excludes interest and dividend income from withholding tax where that income: 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. The term 'superannuation fund for foreign residents' is defined in section 118-520 of the Income Tax Assessment Act 1997 (ITAA 1997) as follows: 118-520(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. 118-520(2) However, a fund is not a superannuation fund for foreign residents if: (a) an amount paid to the fund or set aside for the fund has been or can be deducted under this Act; (b) a tax offset has been allowed or is allowable for such an amount Perusal of the rules indicates that the fund does not satisfy the definition of a superannuation fund for foreign residents for the purposes of section 118-520 of the ITAA 1997. ATO ID 2009/67 identifies that none of the four descriptors in subparagraph 118-520 (a)(ii) of the ITAA 1997 are defined. However, it notes that the terms have been subject to judicial consideration. It states that: "the courts have held for a fund to be a 'provident, benefit, superannuation or retirement fund' , the fund's sole purposed must be to provide superannuation benefits…to a member upon the member reaching a prescribed age or upon their retirement, death or other cessation of employment" Accordingly, the interest and/or dividend income of the fund is not excluded from withholding tax and is assessable income