Private ruling: Residency of Self Managed Superannuation Fund
Published: June 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will a Superannuation Fund remain an Australian superannuation fund as defined in subsection 295-95(2) of the Income Tax Assessment Act 1997 when it commences to pay a pension to its non-resident member? | A1: Yes

Relevant facts and circumstances: The Superannuation Fund (the Fund) is a self managed superannuation fund. The Fund has a sole member (the Member) and a corporate trustee. The directors of the corporate trustee are the sole member, his spouse, and the Fund's Australian representative. The Fund was established in Australia and the assets of the Fund are situated in Australia. The assets of the Fund consist of Australian shares & a bank account. The Member has granted his representative in Australia an Enduring Power of Attorney. The Fund's Australian representative resides in Australia and makes all decisions in relation to the Fund including the acquisition and sale of investments, making buy/sell orders and operating the Fund's bank account. The Member currently resides outside of Australia. The Member became a non-resident during the relevant financial year, and it is unknown when the Member will return to Australia. The Member and their spouse reside overseas together. Since the Member became non-resident, no contributions have been received by the Fund. The Fund is currently in the accumulation phase. The Fund has received a request from the Member to commence a Transition to Retirement Pension.

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).

Reasons for decision: Summary: Subsection 295-95(2) of the 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. The Commissioner of Taxation 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 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: 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. 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. 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: 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 fund's 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. 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, there may be situations where a person other than the trustee is exercising the CM&C of the fund, for example, the trustee may have delegated their duties and powers to that person. 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 Fund's Australian representative has been granted an Enduring Power of Attorney by the Member, and was appointed as a director of the corporate trustee of the Fund and has advised that they make all decisions in relation to the Fund. Accordingly, the Fund's Australian representative, as a director of the corporate trustee and delegate of the Member, performs 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. 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. In this case, Fund's Australian representative, as a director of the corporate trustee and delegate of the Member, performs the high level and strategic decisions in relation to the Fund and is considered to be exercising the CM&C of the Fund. As Fund's Australian representative resides in Australia, the CM&C of the Fund remains ordinarily in Australia. Therefore, it is considered that 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 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 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 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 the present case, there have been no contributions made to the Fund since the Member became a non-resident. Accordingly, the Fund has no active members. Therefore, the requirement under paragraph 295-95(2)(c) of the ITAA 1997 has been satisfied.