Private ruling: foreign pension funds and exemption from withholding tax
Published: December 2014
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 200X

Ruling: Question and Answer | 1. Is the trustee of the pension 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? | No. | 2. Is interest and/or dividend income derived from Australia by the trustee of the pension fund not assessable income of the fund under section 128D of the ITAA 1936? | No.

Relevant facts and circumstances: The applicant has applied for a private ruling for a superannuation fund for foreign residents. The application includes the following documentation: • Letter certifying the fund was exempt from income tax in Country A. • 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 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 for the 2009 - 2010, 2010-11 and 2011-12 financial years. You have advised that less than 0.01% of the beneficiaries are Australian residents.

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 In reviewing your private ruling application and the information that you have provided, you have satisfied all but one of the conditions outlined under section 118-520 of the ITAA 1997. Subsection 118-520(1)(c) of the ITAA 1997 provides that the fund must have been established, and is maintained at that time, only to provide benefits for individuals who are not Australian residents. In your private ruling request you have stated that pension benefits may be paid out to residents of Australia or a Territory of the Commonwealth. Therefore as you do not satisfy all the condition outlined under subsection 118-520(1)(c) of the ITAA 1997, you will not be 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. Further any interest and/or dividend income derived from Australia by the trustee of the pension fund will be assessable income of the fund under section 128D of the ITAA 1936.