Is the Trust 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)?
Yes. This ruling applies for the following periods : 1 July 20XX to 30 June 20XX The scheme commences on: 1 July 20XX
The Retirement Trust (the Fund) ABC Trustee (the Trustee) is the Trustee of the Fund. The Fund is a is a trust forming part of a pension, profit sharing, or stock bonus plan qualified under the relevant tax laws in its country of residence. The Fund is governed by the Master Trust Deed (Trust Deed). The Fund is an indefinitely continuing fund. The Fund was established in a country other than Australia. The Fund was established and maintained only to provide benefits for individuals who are not Australian residents. The Fund serves the employees of the Company who are members of the Company Retirement Plan (the Plan). The Fund's central management and control is carried on outside Australia by entities none of whom are Australian residents. The Trustee is located in a country other than Australia. The overall investment strategy (including asset allocation) for the Fund is managed in a country other than Australia. The Retirement Plan (the Plan) Eligibility
Eligible permanent full-time and temporary employees of a participating company of the age of 21 or over, with at least one year of vesting service and who did not participate in a retirement plan sponsored by another employer in the Group. Participation generally begins on the first month in which an eligible participant satisfies the eligibility requirements. Enrolment is automatic. Funding Plan benefits are funded by Company contributions to the Plan and investment gains made in the Fund. The Plan's assets are held in the Fund, a tax-exempt trust. The Company pays the full cost of the Fund. Participant contributions are not required or permitted. Plan Benefit Formula The Plan is a tax-qualified defined benefit retirement plan designed to provide monthly benefit payments to participants beginning at the date benefits commence. The Plan's benefits are determined based on a percentage of an employee's eligible monthly pay. Retirement Date: No benefits are payable to terminated participants until a time allowed by the plan.
A participant is eligible to commence monthly benefit payments when they terminate employment and are aged 65 or older (Normal Commencement Age) or are at least 55 (Early Commencement) and have accrued at least 60 months of Vesting Service. When a participant terminates on or after attaining the Plan's Early Commencement Age and elects to commence benefit payments at any time prior to the plan's Normal Commencement Age, the amount of the monthly benefit is reduced to reflect the longer period over which benefits are expected to be paid. Death in Service In the event of death before a benefit commences, a survivor benefit will be payable under the Plan if the participant has a vested accrued benefit at the time of death and there is an eligible survivor. • An eligible survivor is - i. a federally recognized spouse to whom the participant has been married for at least 12 consecutive months at the time of death or, ii. a domestic partner registered in accordance with the requirements of a city, state or municipality that recognizes domestic partnerships for at least 12 months.
If the present value of the survivor benefit does not exceed $1,000, a lump sum payment will be paid following the death of a participant. Payment Payment commences after the age of 65 or older, or the participant terminates their employment after the age of 55 and has accrued at least 60 months (5 years) of Vesting Service. Participants must commence their benefit by no later than the April 1st following the calendar year in which you attain age 701⁄2, even if they remain employed by the Company. Each payment form is of equal value determined using the actuarial assumptions in the Plan. The differences in the amounts payable under each form reflect the nature of the various payment forms. The Plan contains no provisions for loans or early withdrawals. Termination of Employment
If a participant terminates employment after accruing at least 60 months (5 years) of Vesting Service, they may commence reduced monthly benefit payments on or after attaining age 55. If they were at least age 55 when they terminated and they choose to commence monthly benefit payments before age 65, the monthly benefit payment will be reduced to reflect a longer expected payment period. However, it will be reduced by a lesser amount than would apply if they terminated before age 55. If a participant terminates employment and defers commencement of the benefit beyond age 65 (Deferred Commencement), the monthly benefit payment will be increased to reflect the shorter expected payment period from the later of the Normal Commencement Age or the termination date. Disability Benefits Participants who are eligible for disability benefits, they continue to receive Benefit Service and Vesting Service. The Fund's current Australian Investments The Fund holds Australian Investments upon which it derives interest, dividend and non-share dividend income. All investments in Australia are listed on the ASX with a total participation interest in respect of each investment being below 10%
• Neither the Trustee nor any related party of the Fund has any involvement in the day to day management of the business of any of the Australian companies or trusts. • The Trustee has no right to appoint a director to the Board of Directors of the Australian companies or trusts. • The Trustee has no right to appoint a director to the Board of Directors of the Australian companies or trusts. • The Trustee has no right to representation on any investor representative or advisory committee (or similar) of the Australian company, or equivalent role in a trust. • The Trustee has no ability to direct or influence the operation of the Australian company or trust outside of the ordinary rights conferred by the equity interest held. • The Trustee only holds rights to vote in proportion to its equity interest in each Australian company or trust. Other relevant facts The Fund was established, and is maintained, to provide benefits for individuals who are not Australian residents. The Fund is not a resident of Australia for tax purposes.
The Fund will receive interest income along with dividend and non-share dividend income from companies who are residents of Australia for tax purposes. The Fund is exempt from U.S. taxation under Section 501(a) and is a resident of the United States of America for purposes of U.S. taxation. No contributions to the Fund are capable of being claimed as a tax offset or as a deduction under either the Income Tax Assessment Act 1997 (ITAA 1997) or the ITAA 1936. Income of the Fund is not 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.
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) as well as other income prescribed in that section. 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 arise. 1. The Fund is a non-resident The Fund is not a resident of Australia. Therefore, the Fund satisfies this requirement. 2. 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. The term 'superannuation fund for foreign residents' is defined in section 118-520 of the ITAA 1997 which provides: 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
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 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. An indefinitely continuing fund The term 'indefinitely continuing fund' is not defined in either the ITAA 1997 or the ITAA 1936. Therefore, it should be given its ordinary meaning subject to the context in which it appears and having regard to any relevant case law authorities.
The Australian Oxford Dictionary, 2004, Oxford University Press, Melbourne defines the term 'fund' as; 1: a permanent stock of something ready to be drawn upon... 2: a stock of money, especially one set apart for a purpose. In Scott v. FC of T (No 2) (1966) 14 ATD 333; (1966) 10 AITR 290 (Scott), Windeyer J expressed the view that 'fund' in the context of 'superannuation fund' ordinarily meant 'money (or investments) set aside and invested, the surplus income therefrom being capitalised'. Windeyer J's views in Scott were cited with approval by Hill J in Walstern Pty Ltd v. Commissioner of Taxation (2003) 138 FCR 1; 2003 ATC 5076; (2003) 54 ATR 423 who stated that 'for present purposes, the point is the need for "money" or "other property" to constitute a fund'. In this case, the Company contributes directly to the Fund. The Fund also earns income from the investment of the Fund's monies. As such, the Fund meets the requirements of being a 'fund'. The general view is that an indefinitely continuing fund does not have to continue forever, but rather that the governing rules should not fix an express termination date.
The governing documents provide no indication that there is an intention for the Plan to end at a definite point in time. Therefore, it is accepted that the Fund will continue to operate for an indefinite period. Therefore, the Fund satisfies this requirement. 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) 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). 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 primary objective of the Plan is to provide for the eligible members of the Plan pensions on their retirement or for their families on death before or after retirement. The Plan pays out member benefits and refunds to individual members. Furthermore, the Plan does not provide benefits as a result of events other than old age retirement, disability or death. The Commissioner accepts these benefits align with the sole purpose of providing retirement benefits or benefits in other allowable contemplated contingencies. Therefore, the Fund satisfies this requirement. Established in a foreign country The Plan and Fund were established in a country other than Australia. Therefore, the Fund satisfies this requirement. Was established and maintained only to provide benefits for individuals who are not Australian residents The Fund was established to invest the contributions of the Company in order to fund the retirements of the Plan's participants. The eligible individuals reside in a country other than Australia.
It is considered that the possibility of a very small number of members being returned residents or becoming Australian residents 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. Therefore, the Fund satisfies this requirement. 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 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 Trustee is located in a country other than Australia. The approval of overall investment strategy (including asset allocation) for the Fund is made outside Australia. Therefore, the Fund satisfies this requirement. Subsection 118-520(2) Pursuant to subsection 118-520(2) of the ITAA 1997, 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 the Act; or b) a tax offset has been allowed or is allowable for such an amount
The Fund has not and cannot deduct amounts under either the ITAA 1997 or the ITAA 1936 for amounts paid to it. The Fund has not been allowed a tax offset nor would be allowable for any amount paid to the Fund or set aside for the Fund. Consequently, based on the statement provided by the applicant, this requirement is satisfied. 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 for the purposes of subparagraph 128B(3)(jb)(i) of the ITAA 1936. 3. The income, consisting of interest, dividend or non-share dividend income, is derived by the Fund Subsection 128B(3CA) of the ITAA 1936, along with paragraph 128B(3)(jb) of the ITAA 1936 requires the superannuation fund for foreign residents to derive the interest, dividends or non-share dividends paid by Australian resident companies.
The Fund invests directly into Australia and receives interest, dividend or non-share dividend income directly from its Australian investments. It will, therefore, derive the relevant income for the purposes of subsection 128B(3CA) of the ITAA 1936 and paragraph 128B(3)(jb) of the ITAA 1936. 4. The Fund is exempt from income tax in the country in which the non-resident resides The Fund is exempt from taxation under the relevant law of the country the Trust is resident in for taxation purposes. Therefore, the Fund satisfies this requirement. 5. 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) to apply. These extra requirements apply only to assets which were acquired after 27 March 2018.. 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: i. Subdivision 880-C of the ITAA 1997, or ii. Division 880 of the Income Tax (Transitional Provisions) Act 1997 . 1. 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.
Subsection 128B(3CB) defines the test entity to be either the entity that paid the interest, dividends or non-share dividends or, if subsection 128A(3) of the ITAA 1936 applies in relation to a resident trust estate, that trust estate. Subsection 995-1(1) of the ITAA 1997 defines total participation interest to have the meaning given by section 960-180 of the ITAA 1997, which states: An entity's total participation interest at a particular time in another entity is the sum of: (a) the entity's *direct participation interest in the other entity at that time; and (b) the entity's *indirect participation interest in the other entity at that time. A 'direct participation interest' that the Fund will have in a test entity is defined in the table in subsection 960-190(1) of ITAA 1997 and depends on what type of entity the other entity is. Item 1 of the table in subsection 960-190(1) and subsection 960-190(2) of the ITAA 1997 provide that a direct participation interest in a company is the 'direct control interest' (within the meaning of section 350 of the ITAA 1936 excluding the operation of subsections 350(6) and (7)) that the first entity holds in the other entity.
Subsection 350(1) of the ITAA 1936 provides that an entity holds a direct control interest in a company at a particular time equal to the percentage of: (a) total paid up share capital (b) voting rights, or (c) rights to distributions of capital or profits that it holds in the company. Where there are different percentages in each of the above, the direct control interest is the greater or greatest of those percentages. Subsection 350(2) of the ITAA 1936 provides that where an entity holds different percentages of total rights to vote for the purposes of (b) above, the highest of those percentages applies in establishing the direct control interest. Subsection 960-185(1) of the ITAA 1997 provides that an entity's indirect participation interest in a test entity is established by multiplying its direct participation interest in an intermediate entity by the sum of the intermediate entity's direct and indirect participation interests in the test entity. As per the facts, the Fund does not hold more than 10% of the total participation of any of the entities listed in the 'Australian Investments' section.
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. 2. The fund satisfies the 'influence test' Subsection 128(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), 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 and circumstances of this Ruling: • Neither the Trustee, 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 Trustee, 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 Trustee, 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 Trustee, nor any related party, has the ability to direct or influence the operation of the Australian companies or trusts outside of the ordinary rights conferred by the equity interest held.
• The Trustee only holds rights to vote in proportion to its equity interest in each of the Australian companies or trusts. Accordingly, the Trustee does not have influence of a kind described in subsection 128(3CD) of the ITAA 1936 in respect of the Fund's investments. The Trustee does not have capacity to influence (either directly or indirectly) the day-to-day management of the operations of their investments. Consequently, the Commissioner accepts that the Trustee does not have influence of a kind described in subsection 128B(3CD). 3. Otherwise non-assessable non-exempt The income received by the Plan 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 . 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. Conclusion
The Fund is excluded from withholding tax in relation to interest, dividend and non-share dividend income derived from the Fund's current investments acquired after 30 June 2019 as listed in the facts.