Private ruling: Residency of a self-managed superannuation fund
Published: August 2015
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the non-resident members of the superannuation fund (the Fund), be active members for the purposes of subsection 295-95(3) of the Income Tax Assessment Act 1997 (ITAA 1997) if superannuation benefits are rolled over into the Fund while the members are non-residents? | A1: No.

Relevant facts and circumstances: The Fund is a self-managed superannuation fund (SMSF). The Fund was established in Australia in the 2014-15 financial year. The members of the Fund are: • Member A; • Member B; and • Member C. The Trustee of the Fund is a corporate trustee. The director of the corporate trustee is Member C. Member C is an Australian resident. The central management and control of the Fund is in Australia. Member C is the legal personal representative for Member A and Member B and has an Enduring Power of Attorney in respect of Member A and Member B. Member A and Member B are currently both non-residents of Australia for tax purposes. Member A and Member B are not making contributions to the Fund and have no intention of making contributions to the Fund while they are non-residents. Member C is an Australian resident and intends to make contributions to the Fund in the short to medium term where appropriate. Member A and Member B have other superannuation accounts with large Australian superannuation funds. The other Australian superannuation accounts have resulted from contributions made during the period Member A and Member B were Australian residents for tax purposes. Member A and Member B have not made contributions to these other Australian superannuation accounts while Member A and Member B were non-residents. Member A and Member B would like to roll-over the amounts held in their other Australian superannuation funds to the Fund.

Relevant legislative provisions: Income Tax Assessment Act 1997 subsection 295-95(2) | Income Tax Assessment Act 1997 subsection 295-95(3)

Reasons for decision: Summary: Both non-resident members of the Fund will not be 'active members' for the purposes of subsection 295-95(3) of the ITAA 1997 if the roll-overs of their superannuation benefits as proposed, were to be effected. However, should the other member of the Fund (who is an Australian resident), make a contribution to the Fund during the relevant period, then that member will be a 'contributor' and therefore, an 'active member' of the Fund. Accordingly, for the Fund to satisfy the active member test in that case, the conditions in subparagraphs 295-95(2)(c)(i) and (ii) of the ITAA 1997 must be considered. | Detailed Reasoning - Detailed reasoning: In accordance with subsection 295-95(2) of the ITAA 1997, a superannuation fund is an Australian superannuation fund at a time and for an 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. Subject to the Fund meeting all of the above three tests during the relevant period, the Fund will be an Australian superannuation fund. If a fund fails to satisfy any one of the tests at a particular time, it will not be an Australian superannuation fund at that time, even if it satisfies the other two conditions. It is important to note that meeting all the above tests for the purposes of determining whether a fund is an Australian superannuation fund, will not in itself ensure compliance status of a superannuation fund. In this case, based on the facts provided, the Fund satisfies the first two tests, as the Fund was established in Australia and the central management and control of the Fund is in Australia. The specific question to be addressed in your private ruling application relates to part of the third test to be satisfied, that is, the 'active member' test. 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 Commissioner of Taxation (the Commissioner) has issued Taxation Ruling TR 2008/9 entitled Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997 (TR 2008/9). The ruling represents the Commissioner's interpretation of the definition of 'Australian superannuation fund', as well as providing guidance on the meaning of central management and control and active member. As explained in paragraph 184 of TR 2008/9, 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. Paragraphs 185 and 189 of TR 2008/9 state: 185. In the case of a superannuation fund, a 'contributor' is an individual who makes a contribution for the purpose of providing for future retirement or superannuation benefits…It appears from the context of the provisions that the focus of the test is on the status of the member as a contributor at a particular point in time, and not actually on the specific act of contributing. 189. If the member is a contributor to the fund at a particular time, they will be an active member within the meaning of subsection 295-95(3) of the ITAA 1997, irrespective of whether the member is an Australian resident or foreign resident. In this case, Member A and Member B are currently non-residents and non-contributors to the Fund. However, Member A and Member B intend to roll-over amounts held in their other Australian superannuation funds to the Fund during the relevant income year. A roll-over superannuation benefit, that is, a superannuation lump sum benefit paid from one complying fund to another complying fund at the direction of the member, is a 'contribution' as it increases the capital of the fund, and is made to obtain superannuation benefits for a particular individual. (Refer: Paragraph 17 of Taxation Ruling TR 2010/1 entitled Income tax: superannuation contributions ). Consequently, if a roll-over of a superannuation benefit occurs during the income year in respect of Member A and Member B, both Member A and Member B would be contributors and hence active members at the time the roll-over took place. However, as Member A and Member B are currently non-residents, the exception pertaining to foreign residents in subparagraph 295-95(3)(b)(iii) of the ITAA 1997 applies. The exception ensures Members A and B will not become active members at the time the roll-overs of their superannuation benefits are made as those contributions are considered to be in relation to a period when those Members were Australian residents. This result is reiterated in paragraph 191 of TR 2008/9, which states: 191. If the member is a foreign resident and a contribution is made on their behalf after they become a foreign resident, they will only be an active member at the relevant time if the contribution is made in respect of the time when the individual was a foreign resident. If the contribution is in respect of a period of time when the individual was an Australian resident, they will not be an active member at the relevant time (subparagraph 295-95(3)(b)(iii) of the ITAA 1997). | Detailed Reasoning - Further issues for you to consider: It is also noted in your private ruling application that Member C may make a contribution to the Fund in the 'short to medium term where appropriate'. Should Member C (who is an Australian resident), make a contribution to the Fund during the relevant period, Member C will be a 'contributor' within the meaning of subsection 295-95(3) of the ITAA 1997 and therefore, an 'active member' of the Fund. Consequently, in such a situation where the Fund does have an active member, the conditions in subparagraphs 295-95(2)(c)(i) and (ii) of the ITAA 1997 must be considered to determine whether the Fund satisfies the active member test.