Private ruling: Residency status of superannuation fund
Date of advice: 7 December 2017
Published: April 2018
Ruling period: Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2017

Ruling: Q1: Will the Fund be an Australian superannuation fund as defined in subsection 295-95(2) of the Income Tax Assessment Act 1997 (ITAA 1997) while the trustees and the members of the Fund are absent from Australia? | A1: Yes

Relevant facts and circumstances: The Fund is a regulated self-managed superannuation fund. The Fund was established in Australia. The members of the Fund are Member 1 and Member 2. Member 1 and Member 2 are also the trustees of the Fund. Member 1 has accepted an employment contract to work overseas for a period of two years. An employment offer to Member 1 states the position offered and period of assignment in the foreign country. Member 2 will accompany Member 1 overseas during the period of Member 1’s employment overseas. The Members’ actual departure from Australia was provided. On the completion of the contract Member 1 and Member 2 will return to Australia. The Fund’s strategic and high level decision making process will continue to be carried out by Member 1 and Member 2 in the foreign country. No contributions will be made by Member 1 or Member 2 to the Fund during the period that they will be overseas. Member 1 and Member 2 will rent out their home in Australia whilst they are overseas. Household belongings, vehicle and trailer will be stored in a unit purchased for this short term storage. Member 1 and Member 2 will reside overseas in accommodation provided by the employer. Income in excess of living expenses will remain in Australia. Member 1 and Member 2 will retain their existing rental properties and Australian investments. The Members do not intend to invest overseas. Member 1 and Member 2 intend to return to Australia on completion of the period of assignment. Member 1 and Member 2 continue to be residents of Australia for income tax purposes for the duration of the employment contract.

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 subsection 295-95(3) | Income Tax Assessment Act 1997 subsection 295-95(4) | Superannuation Industry (Supervision) Act 1993 subsection 10(1) | Superannuation Industry (Supervision) Act 1993 section 42 | Superannuation Industry (Supervision) Act 1993 section 42A

Reasons for decision: Summary: The Fund will continue to be an Australian superannuation fund for the purposes of subsection 295-95(2) of the Income Tax Assessment Act 1997 (ITAA 1997) while Member 1 and Member 2 are overseas. | Detailed Reasoning - Detailed reasoning: For income tax purposes, a superannuation fund qualifies for concessional tax treatment if it is a 'complying superannuation fund' within the meaning of the Superannuation Industry (Supervision) Act 1993 (SISA). To be a complying superannuation fund in relation to a year of income, the fund must, amongst other things, be a 'resident regulated superannuation fund ' at all times during the year of income when it was in existence (sections 42 and 42A of the SISA). A 'resident regulated superannuation fund ' means a regulated superannuation fund that is an ' Australian superannuation fund ' within the meaning of the ITAA 1997 (subsection 10(1) of the SISA). In accordance with subsection 295-95(2) of the ITAA 1997, 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. To be a 'resident regulated superannuation fund' and therefore, a complying superannuation fund within the meaning of the SISA, the fund must satisfy the definition of 'Australian superannuation fund' at all times in the year of income. This means that the fund must satisfy all three tests in the definition of 'Australian superannuation fund' concurrently at all times. In contrast, for income tax purposes, provided that a fund satisfies the definition of 'Australian superannuation fund' in subsection 295-95(2) of the ITAA 1997 at any time during an income year, it will be an Australian superannuation fund for the income year in which that time occurs. Where a fund is an Australian superannuation fund in relation to an income year, the fund must include in its assessable income the ordinary and statutory income the fund derived from all sources, whether in or outside Australia, during that income year. If the fund is a complying superannuation fund in relation to the year of income, this income will be taxed concessionally, that is at 15%. If the fund is non-complying, the fund's taxable income will be taxed at the highest marginal tax rate. Taxation Ruling TR 2008/9 sets out the Commissioner's interpretation of the definition of 'Australian superannuation fund' in subsection 295-95(2) of the ITAA 1997. At paragraph 11, TR 2008/9 states: … there are three tests that a fund must satisfy at the same time 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 test at a particular time, it will not be an Australian superannuation fund at that time, even if it satisfies the other two tests. | 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. 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. The fact that no asset of the fund is situated in Australia does not affect this conclusion (paragraph 14 of TR 2008/9). In the present case, the Fund was established in Australia. Therefore, the requirement under paragraph 295-95(2)(a) of the ITAA 1997 has been satisfied. | Detailed Reasoning - Test Two: central management and control (CM&C) of the fund 'ordinarily' in Australia: 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. In accordance with paragraph 20 of TR 2008/9, 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: ● 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; and ● determining how the assets of the fund are to be used to provide 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. To that effect, paragraph 26 of TR 2008/9 states: The trustee of a fund may seek external advice relating to the performance of their high level duties and activities. Provided that the trustee in fact makes the strategic and high level decisions for the fund, the circumstance that the trustee acts on or is influenced by such advice does not affect the fact that the trustee is exercising the CM&C of the fund. However, 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. | 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. Thus, if the trustees of the fund ordinarily reside overseas (notwithstanding that they may be Australian residents for income tax purposes) then, unless there is evidence to the contrary, the conclusion would be that the CM&C of the fund is overseas. 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. If the CM&C of the fund is being temporarily exercised outside Australia, this will not prevent the CM&C of the fund being ordinarily in Australia at a particular time. Whether an absence is temporary must be determined objectively by reference to all the relevant facts and circumstances on a real time basis. That is, it cannot be established in retrospect. | Detailed Reasoning - CM&C - temporary absences: Subsection 295-95(4) of the ITAA 1997 states: To avoid doubt, the central management and control of a *superannuation fund is ordinarily in Australia at a time even if that central management and control is temporarily outside Australia for a period of not more than 2 years Where the trustees are temporarily absent from Australia for a period of up to two years, subsection 295-95(4) of the ITAA 1997 makes it clear that the CM&C is ordinarily in Australia. On the other hand, where the trustees of the fund are absent from Australia for a period of more than two years, the fund will satisfy the test in subsection 295-95(2) of the ITAA 1997 only if the trustees can establish that their absence was of a temporary nature. At paragraph 33, TR 2008/9 states: The CM&C of a fund will be temporarily outside of Australia if the person or persons who exercise the CM&C of the fund are outside Australia for a relatively short period of time and during that time they exercise the CM&C of the fund overseas. The duration of the absence must either be defined in advance or related (both in intention and fact) to the fulfilment of a specific, passing purpose. Whether an absence is considered to be temporary involves considerations of questions of degree which must be decided by reference to the circumstances of each particular case. In view of the above, it is considered that paragraph 295-95(2)(b) of the ITAA 1997 is satisfied as CM&C of the Fund will be ordinarily in Australia while Member 1 and Member 2 are living overseas for the duration of the employment contract. This view is based on the following factors: ● Member 1 and Member 2 will be overseas to fulfil a specific purpose (the employment contract); ● the duration of Member 1 and Member 2’s absence is defined in advance (two years commencing on the date of departure); and ● Member 1 and Member 2 intend to return to Australia upon the completion of the employment contract. | Detailed Reasoning - Test Three: The active member test: The third test that must be satisfied for a fund to be an Australian superannuation fund at a particular time is the 'active member' test (paragraph 295-95(2)(c) of the ITAA 1997). The 'active member' test is satisfied if, at the relevant time: ● the fund has no 'active member'; or ● at least 50% of the total market value of the fund's assets attributable to superannuation interests held by active members is attributable to superannuation interests held by active members who are Australian residents (subparagraph 295-95(2)(c)(i) of the ITAA 1997); or ● at least 50% of 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 (subparagraph 295-95(2)(c)(ii) of the ITAA 1997). 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 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. In order to determine whether a member is a contributor at any particular point in time, regard must be had to all of the relevant circumstances. Particular regard should be given to the member's intention established by reference to objective evidence. (paragraph 73 of TR 2008/9). In this case, Member 1 and Member 2 do not intend to make contributions to the Fund whilst overseas. Accordingly, as the Fund will have no active members while Member 1 and Member 2 are overseas, the requirement under paragraph 295-95(2)(c) of the ITAA 1997 will be satisfied. In view of the above, all three of the tests in subsection 295-95(2) of the ITAA 1997 have been satisfied.