Private ruling: Residency of self-managed superannuation fund
Date of advice: 6 November 2017
Published: April 2018
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Is the Fund an Australian superannuation fund for the purposes of subsection 295-95(2) of the Income Tax Assessment Act 1997 (ITAA 1997) for the 2017-18 income year? | A1: Yes.

Relevant facts and circumstances: The Fund is a self-managed superannuation fund. The Fund was established in Australia in the 2009-10 income year. The Fund has several members (The Members). The Members of the Fund are Trustees of the Fund. Member 1 performs the high level duties and activities as trustee of the Fund. In late 2015, one of the Members (Member X) departed Australia to take up a work secondment overseas. Member X anticipates returning to Australia in late 2018 from the work secondment. Member X will not perform any of the high level duties and activities as trustee of the Fund whilst overseas. Some of other Members intend to visit Member X whilst overseas for no more than four weeks in the next 12 months. Member X does not intend to make any contributions to the Fund, (nor have any contributions been made on their behalf), for the period they will be overseas. During the relevant time, well over 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.

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 Subparagraph 295-95(2)(c)(i) | Income Tax Assessment Act 1997 Subparagraph 295-95(2)(c)(ii) | Income Tax Assessment Act 1997 Subsection 295-95(3) All references are to the ITAA 1997 unless otherwise indicated.

Reasons for decision: Summary: The Fund satisfies all the tests set out in subsection 295-95(2) and is therefore an Australian superannuation fund for income tax purposes for the 2017-18 income year. | Detailed Reasoning - Australian superannuation fund: In accordance with subsection 295-95(2), 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 m eeting 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). | Detailed Reasoning - Test Two: The CM&C of the fund is ‘ordinarily’ in Australia: The second test, 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) 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 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. Based on the facts of this case, Member 1 performs, and will perform the high level and strategic decisions independently and without influence from the Members of the Fund. Therefore it is considered that Member 1 exercises 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. In this case, as Member 1 exercises the CM&C of the Fund in Australia, the CM&C of the Fund is exercised ‘ordinarily’ in Australia. The fact that Member X has been (and will be) temporarily absent from Australia, does not impact (nor will it affect) the fact that the CM&C of the Fund is exercised in Australia and continues to remain in Australia. The requirement in paragraph 295-95(2)(b) 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), the active member test is satisfied if, at the relevant time: n the fund has no ‘active’ member; or n 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 n 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), 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. If a member is a contributor at a particular time, they will be an active member, irrespective of whether the member is an Australian resident or foreign resident. [Refer: paragraphs 185 and 189 of TR 2008/9]. There have been no contributions to the Fund in respect of Member X while they have been overseas. Further, Member X does not intend to make any contributions to the Fund (nor have any contributions made on their behalf) for the period they will be overseas. That being the case, Member X is not an ‘active’ member. As per the facts of this case, the other Members of the Fund are ‘active’ members during the relevant period. A fund with an ‘active’ member can apply either method in subparagraphs 295-95(2)(c)(i) and (ii) to determine whether it satisfies the active member test. In this case, as there are ‘active’ Members are Australian residents who hold more than 50% of the total market value of the Fund’s assets attributable to superannuation interests, the Fund satisfies subparagraph 295-95(2)(c)(i). Accordingly, the ‘active member’ test is satisfied. | Detailed Reasoning - Conclusion: As all of the relevant tests mentioned in subsection 295-95(2) have been satisfied, it is considered that the Fund is, and will remain an Australian superannuation fund in the specified income year.