Private ruling: Residency of self managed superannuation fund.
Published: June 2012
Ruling period: Year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Will the superannuation fund continue to be an Australian superannuation fund as defined in subsection 295-95(2) of the Income Tax Assessment Act 1997? | A1: Yes.

Relevant facts and circumstances: The Fund was established in Australia. The Members are currently Australian residents. Member 1 recently accepted a promotion with their current employer and as a result both members will relocate overseas in the relevant income year. The members have stated they intend to remain overseas permanently. The members have stated they have sold their family home and are intending to sell their current motor vehicle. Based on the above the members will cease to be Australian residents. As the members wish to keep their SMSF active and complying whilst they are overseas they intend to execute an enduring power of attorney in favour of a friend, who is an Australian resident. The members have stated the following in regards to the power of attorney: The person with power of attorney will be 100% making decisions themself for the SMSF and they will not be liaising and or taking any directions from the members no matter how important the decision will be. The members intend to appoint the person holding the enduring power of attorney as Trustee and in turn, Member 1 and Member 2 will resign as trustees. Member 1 has stated that they intend to keep their SMSF Australian bank account open. Member 1 has stated that the members will not make any contributions to the SMSF whilst they are non residents.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 295-95. | Income Tax Assessment Act 1997 Subsection 295-95(2). | Income Tax Assessment Act 1997 Paragraph 295-95(2)(a). | Income Tax Assessment Act 1997 Paragraph 295-95(2)(b). | Income Tax Assessment Act 1997 Paragraph 295-95(2)(c). | Income Tax Assessment Act 1997 Subsection 295-95(3). | Income Tax Assessment Act 1997 Subsection 295-95(4). | Superannuation Industry (Supervision) Act 1993 Section 17(A) | Superannuation Industry (Supervision) Act 1993 Subsection 17(A)(1) | Superannuation Industry (Supervision) Act 1993 Paragraph 17(A)(3)(b) | Superannuation Industry (Supervision) Act 1993 Subparagraph 17(A)(3)(b)(ii)

Reasons for decision: Detailed Reasoning - Summary of decision: Provided the intentions of the members are actioned and completed, the Fund will continue to be an Australian Superannuation Fund in the relevant income year as: § it was established in Australia; § the central management and control of the Fund is ordinarily in Australia; and § there are no active members. | Detailed Reasoning - Detailed reasoning: Subsection 295-95(2) of the Income Tax Assessment Act 1997 (ITAA 1997) defines what is an Australian superannuation fund. Subsection 295-95(2) of the ITAA 1997 provides that: A superannuation fund is an Australian superannuation fund at a time, and for the income year in which that time occurs, if: (a) the fund was established in Australia, or any asset of the fund is situated in Australia at that time; and (b) at that time, the central management and control of the fund is ordinarily in Australia; and (c) at that time either the fund had no member covered by subsection (3) (an active member ) or at least 50% of: (i) the total market value of the fund's assets attributable to superannuation interests held by active members; or (ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members; is attributable to superannuation interests held by active members who are Australian residents. There are three tests that a fund must satisfy in order to be treated as an Australian superannuation fund as defined in subsection 295-95(2) of the ITAA 1997. If a fund fails to satisfy any one of the conditions at a particular time, it will not be an Australian superannuation fund at that time, even if it satisfies the other two conditions. | Detailed Reasoning - Test One: Fund established in Australia or any asset of the fund is situated in Australia: The first test that a superannuation fund must satisfy to be an Australian superannuation fund at that time is that the fund was either established in Australia, or any asset of the fund is situated in Australia at the relevant time. This is a question of fact. A superannuation fund will be established when the trust deed governing the operation of the fund is signed and executed. The money or other property is transferred to the trustee or trustees of the fund, to be held on trust for the beneficiaries (members) of the fund, and is made by a person or persons situated in Australia. The establishment of the fund requirement in paragraph 295-95(2)(a) of the ITAA 1997 is a once and for all requirement. That is, once it is determined that a fund was established in Australia, it will satisfy the first test at all relevant times. If it is determined that the fund was not established in Australia, then the alternative requirement in paragraph 295-95(2)(a), namely location of the assets of the fund, must be considered. In the present case, the Fund is established in Australia. Therefore the first requirement under paragraph 295-95(2)(a) of the ITAA 1997 has been satisfied. | Detailed Reasoning - Test Two: The CM&C of the fund ordinarily in Australia: The second test, and one of the key requirements that a superannuation fund must satisfy to be an Australian superannuation fund at a particular time, is that the Central Management and Control (CM&C) of the fund is ordinarily in Australia. Generally, the location of where important decisions are made is the location of the relevant management and control. The concept of CM&C is not defined in the ITAA 1997 or in the Income Tax Assessment Act 1936 (ITAA 1936). In addition, the Explanatory Memorandum to the Superannuation Legislation Amendment (Simplification) Act 2007 (which inserted section 295-95 of the ITAA 1997) does not provide any guidance as to its meaning. Therefore it must be given its ordinary or common law meaning. The policy intention of the amendment was to simplify the scope of the superannuation fund residency definition and give effect to a minor policy change in respect of the application of the CM&C test. The concept of CM&C was developed by the courts as a common law rule for determining the residence of a company. To determine the location of the CM&C of a fund at a point in time, it is necessary to consider what constitutes the CM&C of a fund and who it is that exercises the CM&C of a fund. The CM&C of a superannuation fund involves the 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 the performance of the following duties and activities: § formulating the investment strategy for the fund; § reviewing and updating or varying the funds investment strategy as well as monitoring and reviewing the performance of the funds 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. Establishing who is exercising the CM&C of the fund is a question of fact to be determined with reference to the circumstances of each case. While it is the trustee of the fund which has the legal responsibility or duty to exercise the CM&C of a superannuation fund, the mere duty to exercise CM&C does not, of itself, constitute CM&C. If the trustee in fact performs the high level duties and activities of the fund, they will be exercising the CM&C of the fund in practice. There may be situations where a person other than the trustee is exercising the CM&C of the fund. If a person other than the trustee of the fund independently and without any influence from the trustee performs those duties and activities that constitute the CM&C of the fund, that person is exercising the CM&C of the fund. The facts state the members intend to grant their friend, who is an Australian resident, an enduring power of attorney whilst they are non residents of Australia. Further, the facts state that the person with power of attorney will be 100% making decisions themself for the SMSF and that they will not be liaising and or taking any directions from the members no matter how important the decision may be. TR 2008/9 provides examples as to where executing a power of attorney, as per the members intentions mentioned above, is sufficient. However, these are usually restricted to where the trustees are overseas for an extended period (over two years) yet intend to return to Australia at some point in the future. The facts, however, state that the members intend to remain overseas permanently. Subparagraph 17(A)(3)(b)(ii) of the Superannuation Industry (Supervision) Act 1993 (SISA) allows a person who holds an enduring power of attorney in respect of a member, to be a trustee of a superannuation fund in place of the member without causing the fund to cease to be an SMSF. As such, the members intend to appoint the person they have executed the power of attorney in favour of, as trustee of the Fund and then both resign as trustees of the Fund. Therefore the person holding an enduring power of attorney will also be the sole trustee of the Fund. This person will be making all the necessary high level and strategic decisions and perform all the high level duties entirely himself for the SMSF and will not be liaising and or taking any directions from the members at any time. As such this person will be considered as exercising the CM&C of the Fund. | Detailed Reasoning - Location of the CM&C: The location of the CM&C of the fund is determined by where the high level and strategic decisions of the fund are made and high level duties and activities are in fact performed. Whether the CM&C of a fund is ordinarily in Australia at a particular time is to be determined by the relevant facts and circumstances of each case. It involves determining whether, in the ordinary course of events, the CM&C of the fund is regularly, usually or customarily exercised in Australia. There must be some element of continuity or permanence if the CM&C of the fund is to be regarded as being ordinarily in Australia. The facts state the person holding the enduring power of attorney will be appointed as trustee. Whilst this person remains a resident of Australia and continues to make the high level and strategic decisions and perform the high level duties in Australia, the location of the CM&C will in fact be ordinarily in Australia. Provided the intentions of the members are carried out, the Fund will satisfy the CM&C test under paragraph 295-95(2)(b) of the ITAA 1997. | Detailed Reasoning - Test Three: The active member test: The active member test requires that, where a fund has at least one active member, then the accrued entitlements of Australian resident active members must be 50 per cent or more of the accrued entitlements of all active members of the fund. As defined in subsection 295-95(3) of the ITAA 1997, a member is an active member at a particular time if the member is: (a) a contributor to the fund at that time; or (b) an individual on whose behalf contributions have been made, other than an individual: (i) who is a foreign resident; and (ii) who is not a contributor at that time; and (iii) for whom contributions made to the fund on the individual's behalf after the individual became a foreign resident are only payments in respect of a time when the individual was an Australian resident. The term contributor in the definition of active member is not defined. Therefore, it is to be given its ordinary meaning subject to the context in which it appears. The concept of a contributor within the context of the active member test is directed at establishing the status of a member as a contributor at a particular point in time, not on the specific act of contributing. The facts state that the members will not make any contributions to the fund whilst they are non residents. As such, there will be no active members once the members move overseas. Therefore, the requirement under paragraph 295-95(2)(c) of the ITAA 1997 has been satisfied. | Detailed Reasoning - Conclusion: Provided all the member's intentions have been actioned and finalised, the requirements under subsection 295-95(2) of the ITAA 1997 will be met and the Fund will continue to satisfy the definition of an Australian superannuation fund.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts and circumstances Member 1 and Member 2 are the only members and trustees of the Fund.