Private ruling: Residency status of self-managed fund
Date of advice: 12 February 2016
Published: April 2016
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ending 30 June 2016 | Year ending 30 June 2017
Date scheme commenced: 1 July 2013

Ruling: Q1: Is your self-managed superannuation fund (the Fund) an Australian superannuation fund as defined in subsection 295-95(2) of the Income Tax Assessment Act 1997 for the XXXX-XX, XXXX-XX, 20XX-XX and XXXX-XXXX income years? | A1: Yes.

Relevant facts and circumstances: The Fund was established in Australia during the XXXX-XX income year. The members of the Fund are Member 1 and Member 2. The Fund has a corporate trustee of which Member 1, Member 2 and a relative are directors. The relative is a resident in Australia. During the XXXX-XX income year Member 1 entered into a contract (the Contract) with an overseas employer (the Employer), for set period of employment commencing during the XXXX-XX income year. In the Contract there was an option to renew. In the XXXX-XX income year Member 1 departed Australia on a work visa to work in an overseas country (the overseas country). During the XXXX-XX income year Member 2 departed Australia for the overseas country on a visa which does not allow the Member 2 to stay permanently in the overseas country. In the XXXX-XX income year, a relative of the Members moved to the overseas country for educational purposes which would cease early in the XXXX-XX income year. At the time the Members left Australia, the relative was not going to join them and they did not see an issue with returning to Australia within two years. The Members wish to extend the time in the overseas country to coincide with the cessation of the relative's studies in the XXXX-XX income year. In a letter during the XXXX-XX income year the Employer extended Member 1's contract. Member 1 will give the Employer a number of months' notice if the Member cannot relocate back to Australia with the Employer. Member 1 and Member 2 are responsible for making the strategic and high level decisions of the Fund. Currently, whilst the Members are overseas, the strategic and high level decision making processes and activities of the Fund are fully operated by Member 2, who handles all the accounts, payments and submissions to accountants for annual returns, and have recently also taken over all ASIC duties. This is done in the overseas country or Australia when Member 2 is visiting Australia. Member 2 also sets up meetings with advisors, either via electronic means or when visiting Australia. To date all decisions in relation to the Fund have been done by Member 1 and Member 2, including regular consultations with their investment advisors, who handle the share investing for the Fund. No contributions have been made by the Members or any other party to the Fund from the date they arrived in the overseas country nor will any contributions be made to the Fund prior to their return to Australia in early in the XXXX-XX income year. Member 1 and Member 2 are citizens of Australia. The Members are renting accommodation in the overseas country on a fixed lease with an option to extend. The Members have no assets overseas apart from furniture. The assets the Members have in Australia include a car and goods held in storage which are paid up until early in the XXXX-XX income year. Members 1 and 2 have accounts in Australia. Whilst overseas the Members rented out their residential property and until it was sold in the XXXX-XX income due to favourable conditions and problems renting out the property. The Members are currently looking to buy investment property in Australia to replace their residential property which was sold, as well as other investments, with monies earned from the sale of the property. None of their monies earned have been moved offshore, as the Members intend to retire in Australia. Details of the Members' travel between Australia and the overseas country have been supplied which show they return regularly and include meetings with a financial advisor.

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)

Reasons for decision: Summary: The Fund is an Australian superannuation fund as defined in subsection 295-95(2) of the Income Tax Assessment Act 1997 for the XXXX-XX, XXXX-XX, XXXX-XX and XXXX-XX income years. | 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. 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'. In particular, it provides guidance on the meaning of central management and control (CM&C) and active member. | Detailed Reasoning - Test One: The fund is established in Australia or any asset of the fund is situated in Australia: The first test that must be satisfied is that either the fund was established in Australia, or any asset of the fund is situated in Australia at the relevant time. This is a question of fact. In this case, the Fund was established in Australia and therefore satisfies the requirement in paragraph 295-95(2)(a) of the ITAA 1997. | Detailed Reasoning - Test Two: The CM&C of the fund is '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 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 Tax Laws Amendment (Simplified Superannuation) 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. Paragraph 20 of TR 2008/9 states that 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 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. 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. In discussing CM&C, TR 2008/9 states at paragraph 26: The trustee of a fund may seek external advice relating to the performance of their high level duties and activities. Provided that the trustee makes the actual high level decisions for the fund, the circumstance that the trustee acts on such advice does not affect the fact that the trustee is exercising the CM&C of the fund. However, 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. In this case the directors of the Fund's corporate trustee are Member 1, Member 2 and a relative of the Members'. The relative is resident in Australia. As Member 1 and Member 2 perform the high level and strategic decisions in relation to the Fund and it is considered that they exercise 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 (regardless of where the persons exercising the CM&C of the fund actually reside). 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. Paragraph 32 of TR 2008/9 states: While the CM&C of a fund can be outside Australia for a period greater than 2 years, the period of absence of the CM&C must still be temporary. Furthermore, if the CM&C of the fund is not temporarily outside Australia, it will not be 'ordinarily' in Australia at a time even if the period of absence of the CM&C is 2 years or less. 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: To provide certainty to trustees of superannuation funds, especially trustees of an SMSF for whom the old 'two year temporary absence rule' was mainly directed, subsection 295-95(4) of the ITAA 1997 was inserted into the definition of 'Australian superannuation fund'. This subsection explains that the CM&C of a superannuation fund is ordinarily in Australia if it is temporarily exercised outside Australia for a period of not more than two years. Where the trustees are temporarily absent from Australia for a period of up to two years, then subsection 295-95(4) of the ITAA 1997 makes it clear that the CM&C is ordinarily in Australia. On the other hand, it is considered that where the trustees of the fund are absent from Australia for a period greater than two years, the fund will only satisfy the test in subsection 295-95(2) of the ITAA 1997 if the trustees can establish that their absence was of a temporary nature. Paragraph 33 of TR 2008/9 states that: 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. 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 a period of absence is considered to be relatively short involves considerations of questions of degree which must be decided by reference to the circumstances of each particular case. In this case, Member 1, Member 2 and a relative of the Members' are the directors of the corporate trustee. The facts indicate the high level and strategic decisions relating to the Fund and the legal responsibility for exercising the CM&C of the Fund are done by Member 1 and Member 2. Further, as no other person has been appointed to independently exercise decisions for the Fund, it follows that the high level decisions relating to the Fund are required to be made jointly by the directors and the CM&C is attached to those directors, Member 1 and Member 2. It is also considered that in this case the CM&C of the Fund being overseas commenced on a date during the XXXX-XX income year, that is when Member 2 took up residence in the overseas country which in effect resulted in both the directors who jointly exercised the Fund's CM&C not being located in Australia. As the directors absence from Australia will be for a period of more than two years, i.e. during the XXXX-XX income year to when they intend to return to Australia in the XXXX-XX income year, subsection 295-95(4) of the ITAA 1997 does not apply. Notwithstanding the above, the Commissioner accepts that the directors' relocation to the overseas country is temporary and that therefore the CM&C of the Fund remains ordinarily in Australia during the period of the directors' stated absence from Australia, namely, from a date in the XXXX-XX income year to the date in the XXXX-XX income year. This conclusion is supported by the following facts: • the Members absence from Australia was defined in advance and is related to the fulfilment of a specific purpose, that being, Member 1's employment contract in the overseas country; • the Members intend to return permanently to Australia early in the XXXX-XX income year at the end of Member 1's current job, and when the relative's studies are completed; • the Members absence from Australia will not be greatly over the two year period; • the Members have not established a permanent home outside Australia; and • the Members continue to maintain assets in Australia during the period they will be in the overseas country. The requirement in paragraph 295-95(2)(b) of the ITAA 1997 has therefore been satisfied. | 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'. In accordance with paragraph 295-95(2)(c) of the ITAA 1997, as previously stated, 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; 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. 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. In this case, the Fund has no 'active' members. There have been no contributions to the Fund in respect of either Member while they have been overseas. Further, the Members do not intend to make any contributions for the remainder of the period they will be in the overseas country. As there are no 'active' members of the Fund for the purposes of paragraph 295-95(2)(c) of the ITAA 1997, the active member test will be satisfied. As all of the relevant conditions in subsection 295-95(2) of the ITAA 1997 have been satisfied it is accepted that the Fund is an Australian superannuation fund for the 20XX-XX, XXXX-XX, XXXX-XX and XXXX-XX income years.