Private ruling: Residency of a self managed superannuation fund
Published: February 2014
Ruling period: A number of income years
Date scheme commenced: 1 July 2013

Ruling: Q1: Are the members of the self managed superannuation fund (the Fund) residents for income tax purposes? | A1: Yes. Issue 2 | Q2: Is the Fund an Australian superannuation fund as defined in subsection 295-95(2) of the Income Tax Assessment Act 1997 for a number of income years? | A2: Yes, provided the Facts of this ruling remain the same.

Relevant facts and circumstances: 1. The Fund is a self-managed superannuation fund (SMSF). 2. There are two members of the Fund. The two members are also Directors of the Corporate Trustee (the Trustees). 3. The Trustees were born in Australia and are citizens of Australia. 4. The Trustees are not permanent residents of any other country and do not intend on taking up permanent residency in another country. 5. The Trustees are planning to travel overseas on an extended holiday and intend to return on a specific date. 6. The Trustees will be renting out their residential home and putting their furniture and content into storage for their return. They will also continue to keep their car and motorbike which will be in storage. All their investments, including share portfolio, bank accounts and two other investment properties will continue to remain in Australia. The members will continue to have private health insurance in Australia and have just increased their cover. 7. The Trustees will not establish a home outside Australia. While in an overseas country the Trustees will live in their RV. When the Trustees are in other countries they will stay in holiday apartments or safari camps. 8. The Trustees will put on the immigration out going passenger card that they are leaving Australia temporarily for a holiday. 9. The Trustees will return to Australia for medical treatment if required and would stay in Australia for as long as necessary for this treatment. 10. The Trustees do not have any assets overseas in any country and they do not intend on acquiring any assets overseas. 11. The Trustees have opened a bank account in an overseas country solely for the purpose of being able to pay for things where their Australian accounts won't allow them to. 12. The Trustees are retired and will not be working in any country. They will be living off accumulated savings and the pension from the Fund. They will only be withdrawing what money they need to live and travel. They both have family in an Australian state. 13. The Trustees plan to visit some countries in 2014. 14. The Trustees haven't made any plans for future years but have some countries on their list. 15. The Trustees have a tourist visa for the overseas country which allows them to stay up to 6 months at a time for an unspecified amount of time. During these times away from the overseas country they will visit the other countries on their list. 16. The Trustees will get a tourist visa for an overseas country at the airport. 17. The Trustees will still manage the day-to-day running of the Fund, paying the bills etc. They will also continue to prepare all the paperwork and data entry for the year and taxation accounts for their accountant. They will have monthly discussions by phone with their stockbroker regarding their share investments. They will be in contact with their accountant as necessary by e-mail or phone. They will continue to have trustee meetings where ever they are to manage and control their Fund. 18. The Trustees advised that with current technology such as mobile, internet, email, Skype, VOIP and laptops, they are able to travel anywhere in the world and remain in control of the Fund and have contact with people that affect the Fund. 19. The members are not currently making contributions to the Fund.

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 Subsection 295-95(4) | Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Assessment Act 1936 Subsection 6(1)

Reasons for decision: Summary: 20. The members of the Fund are still considered to be residents for income tax purposes. 21. The Fund is an Australian superannuation fund as defined in subsection 295-95(2) of the Income Tax Assessment Act 1997 for the number of income years the members are holidaying overseas. | Summary: 22. The members of the Fund are still considered to be residents for income tax purposes. | Detailed Reasoning - Residency: 23. The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the Income Tax Assessment Act 1936 . 24. The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are the: · resides test; · domicile and permanent place of abode test; · 183 day test; and · Commonwealth superannuation fund test. 25. The primary test for deciding the residency status of each individual is whether they reside in Australia according to the ordinary meaning of the word resides. If the primary test is satisfied the remaining three tests do not need to be considered as residency for Australian tax purposes has been established. | Detailed Reasoning - The resides (ordinary concepts) test: 26. The outcomes of several Administrative Appeals Tribunal (AAT) cases have determined that the word ' resides' should be given the widest meaning and there have been a number of factors identified which can assist in determining if a particular taxpayer is a resident of Australia under this test. 27. Recent case law decisions have considered the following factors in relation to whether the taxpayer was a resident under the 'resides' test: (i) Physical presence in Australia (ii) Nationality (iii) History of residence and movements (iv) Habits and "mode of life" (v) Frequency, regularity and duration of visits to Australia (vi) Purpose of visits to or absences from Australia (vii) Family and business ties to different countries (viii) Maintenance of Place of abode in Australia. 28. These factors are similar to those which the Commissioner has said are relevant in determining the residency status of individuals in Taxation Ruling IT 2650 Income tax: residency - permanent place of abode outside Australia and Taxation Ruling TR 98/17 Income tax: residency status of individuals entering Australia. | Detailed Reasoning - 29. Application of the above factors to your circumstances: (i) The members intend on going overseas on a holiday and will be away from Australia for an extended holiday. The members may return to Australia from time to time for medical treatment when required. (ii) The members are citizens of Australia and neither of them intend on taking up permanent residence in any other country. (iii) The members have a home in Australia and have lived in Australia all of their life. (iv) The members have travelled extensively throughout Australia in the past. The members intend on travelling to some overseas countries. (v) (v &vi) The members will make trips back to Australia for medical treatment when required. (vii) The members' family are in Australia and their assets will be maintained in Australia. The members do not have any assets overseas. The members will not be working whilst travelling overseas. The members are retired. (viii) The members will rent out their family home while they are travelling. | Detailed Reasoning - Conclusion - Resides test: 30. Based on the above, the members are residing in Australia according to ordinary concepts. 31. As the members meet the resides test there is no need to consider the domicile, 183 day and superannuation tests. | Summary: 32. The Fund is an Australian superannuation fund as defined in subsection 295-95(2) of the Income Tax Assessment Act 1997 for the number of income years the members are holidaying overseas. | Detailed Reasoning - Detailed reasoning: 33. Subsection 295-95(2) of the Income Tax Assessment Act 1997 (ITAA 1997) defines what is an Australian superannuation fund and 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. 34. 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. 35. 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. 36. The Commissioner of Taxation has issued Taxation Ruling TR 2008/9 titled Income tax: meaning of Australian superannuation fund in subsection 295-95(2) of the Income Tax Assessment Act 1997 (TR 2008/9). 37. The ruling represents the views of the Commissioner and sets out the Commissioner's interpretation of the definition of Australian superannuation fund. | Detailed Reasoning - Test One: Fund established in Australia or any asset of the fund is situated in Australia: 38. 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. 39. 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. 40. 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: The CM&C of the fund ordinarily in Australia: 41. 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. 42. 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. 43. The concept of CM&C was developed by the courts as a common law rule for determining the residence of a company. 44. 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. 45. 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. 46. 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. 47. 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. 48. 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. | Detailed Reasoning - Location of the CM&C: 49. 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. 50. 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. 51. From the facts the Trustees will have monthly discussions by phone with their stockbroker regarding their share investments. They will be in contact with their accountant as necessary by e-mail or phone. They will continue to have trustee meetings where ever they are to manage and control their Fund. It was also advised that with current technology such as mobile, internet, email, Skype, VOIP and laptops, they are able to travel anywhere in the world and remain in control of the Fund and have contact with people that affect the Fund. 52. From the facts, the Trustees have stated a clear intention to continue exercising CM&C of the Fund. They will be assisted by certain professionals such as their stockbroker and accountant. There is no evidence to indicate that CM&C will be exercised by another person during the trustees' absence from Australia. On the facts provided, it is reasonable to conclude that CM&C will continue to be exercised by the Trustees. 53. Paragraphs 28 to 34 of Taxation Ruling TR 2008/9 discusses CM&C - temporary absences as follows: | Detailed Reasoning - When is the CM&C of the fund 'ordinarily' in Australia: 28. 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. | Detailed Reasoning - CM&C - temporary absences: 29. 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. 30. The effect of subsection 295-95(4) is to provide one set of circumstances in which the CM&C of a fund will be taken to be 'ordinarily' in Australia at a time for the purposes of paragraph 295-95(2)(b) of the ITAA 1997 (that is, it operates as a 'safe harbour' rule). 31. Subsection 295-95(4) of the ITAA 1997 does not otherwise restrict the meaning of 'ordinarily' so that the CM&C of the fund can only be outside Australia for a period of 2 years or less. If the CM&C of the fund is outside Australia for a period greater than 2 years, the fund will satisfy the CM&C test if it satisfies the 'ordinarily' requirement in paragraph 295-95(2)(b) of the ITAA 1997. 32. 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. 33. The CM&C of a fund will be 'temporarily' outside 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 consideration of questions of degree which must be decided by reference to the circumstances of each particular case. 34. 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. 54. TR 2008/9 advises that CM&C may be temporarily exercised outside Australia and still be held as being 'ordinarily' in Australia at a particular time. The ruling comments that there must be some element of continuity or permanence. There is a statutory exemption in subsection 295-95(4) of the ITAA 1997 where the absence is for a period of not more than 2 years. The 2 year concession is not satisfied in this case so the general principles concerning when CM&C is ordinarily in Australia apply. 55. To qualify as a temporary absence (CM&C still ordinarily in Australia) the ruling states that: · the persons who exercise the CM&C should only be outside Australia for a relatively short period of time, and · the duration of the absence must be defined in advance to the fulfilment of a specific, passing purpose. 56. In this case the Trustees are planning to travel overseas on an extended holiday and intend to return on or before a specific date. 57. TR 2008/9 further advises that whether an absence is considered to be temporary involves consideration of questions of degree which must be decided by reference to the circumstances of each particular case. In this particular situation all of the facts support the contention of a temporary absence apart from one which is the length of time involved. However, in this particular case there are a number of factors that support a finding that despite the proposed extended holiday the time spent overseas is a temporary absence within the terms of TR 2008/9. The factors include: · The absence is for a specific, passing purpose. The absence is for an extended retirement holiday which has a definite planned end at which time the Trustees will return to Australia. · The purpose of the trip is to take an extended retirement holiday. It will be funded by pensions paid from the Fund and other savings. The Trustees have retired and will not be working in any country. · During this absence there is no intention to become a resident of another country or establish a home outside Australia. The Trustees intend to travel extensively to many countries and will be either living in a recreational vehicle or short-term rented accommodation. · Throughout the extended holiday the Trustees will be residents of Australia for tax purposes. · The Trustees have kept their home in Australia which will be rented out during their trip. Property such as their furniture and motor vehicle will be put into storage for continued use when they return. · They intend to retain their Australian health insurance and where necessary return to Australia for medical treatment. · The visa class they have been issued for their time in an overseas country is 'tourist'. · Investments, including a share portfolio, bank accounts and two other investment properties will continue to remain in Australia. 58. From the above, it is considered that the CM&C of the Fund is temporarily outside Australia for the period that the Trustees travel overseas on an extended holiday and the Fund is considered to be ordinarily in Australia during that period. Therefore, the requirement under paragraph 295-95(2)(b) of the ITAA 1997 has been satisfied. 59. It should be noted that as we have determined that based on the facts of the case that the extended overseas trip is considered as a temporary absence, any change in the facts even if it is minor change could see this decision reversed. | Detailed Reasoning - Test Three: The active member test: 60. The third test that a fund is required to satisfy to be an Australian superannuation fund is the 'active member' test. Paragraph 69 of Taxation Ruling TR 2008/9 states: 69….. 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). 61. From the facts, the Trustees are not currently making contributions to the fund. Therefore, the requirement under paragraph 295-95(2)(c) of the ITAA 1997 has been satisfied. Conclusion : 62. As all of the conditions under subsection 295-95(2) have been satisfied, the Fund is considered to be an Australian superannuation fund during the Trustees' extended overseas holiday trip provided the facts of this private ruling remain the same during that period.