Private ruling: Meaning of Australian Superannuation Fund
Published: October 2012
Ruling period: Income year ending 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Is the self managed superannuation fund an Australian superannuation fund in accordance with section 295-95 of the Income Tax Assessment Act 1997 (ITAA 1997) | A1: Yes.

Relevant facts and circumstances: The self managed superannuation fund (the Fund) was established in Australia. The Fund has two members who are also trustees of the Fund. One trustee (Member A) resides in Australia. The other trustee (Member B) is working overseas. Member A does not intend to make any contributions into the Fund and no contributions will be made on their behalf during the 2012-13 income year. Member B does not contribute to the Fund and no contributions will be made on their behalf during the 2012-13 income year. Member B does not have an entitlement to any assets of the Fund. Member B is kept informed about the Fund's affairs but all high level and strategic decisions are made by Member A in Australia.

Relevant legislative provisions: 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: 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. 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) which sets out the Commissioner's interpretation of the definition of Australian superannuation fund in subsection 295-95(2) of the ITAA 1997. The Commissioner considers that there are three tests that a superannuation fund must satisfy at a particular time if it is to be an Australian superannuation fund as defined in subsection 295-95(2) of the ITAA 1997. If a fund fails to satisfy any one of these tests at that particular time, it is not an Australian superannuation fund at that time, even if it satisfies the other two tests. If the fund has satisfied all three tests at a particular time in the income year then, for income tax purposes, it is an Australian superannuation fund for the entire income year in which that time occurs. | Detailed Reasoning - First test: fund is established in Australia or any asset of the fund is situated in Australia: The requirements in the first test will be satisfied if either the superannuation fund was established in Australia or at a particular time any asset of the fund is situated in Australia. 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. If it is determined that the fund was not established in Australia, then the alternative requirement in paragraph 295-95(2)(a), namely location of the assets of the fund, must be considered. In this case, the Australian Taxation Office records show that the Fund was established in Australia, therefore, the requirement in paragraph 295-95(2)(a) of the ITAA 1997 has been satisfied and no further consideration as to the location of its assets is required. | Detailed Reasoning - Second test: central management and control of the fund 'ordinarily' in Australia: The second test requires that, at a particular time, the central management and control (CM&C) of the fund is ordinarily in Australia. In paragraph 20 of TR 2008/9, the Commissioner states that the CM&C of a superannuation fund involves a 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: · 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. 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. Further to the above, the Commissioner states, at paragraph 35 of TR 2008/9: Where there is an equal number of individual trustees or directors located in Australia and overseas and each of those directors/trustees substantially and actively participate in the exercise of the CM&C of the fund from those location, it is accepted that the CM&C of the fund will ordinarily be in Australia within the meaning of paragraph 295-95(2)(b) of the ITAA 1997. This will be the case despite the fact that the CM&C of the fund is also ordinarily being exercised overseas. In this case, the Fund has an equal number of individual trustees located inside and outside Australia - Member A (residing in Australia) and Member B (temporarily residing overseas). It is stated that, while Member B is kept informed of the Fund's affairs, the high level and strategic decisions of the Fund are made by Member A [in Australia]. Therefore, it is considered that CM&C of the Fund is ordinarily in Australia. As such, the requirements in paragraph 295-95(2)(b) of the ITAA 1997 have been satisfied. This would be the case even if Member B did substantially and actively take part in that decision making process as well as Member A. | Detailed Reasoning - Third test: 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; 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. A superannuation fund with an active member can apply either method in paragraph 295-95(2)(c) of the ITAA 1997 to determine whether it satisfies the active member test. Subsection 295-95(3) of the ITAA 1997 provides that a member is an active member of a superannuation fund at a particular time if the member is a contributor to the fund at that time or is an individual on whose behalf contributions have been made. 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. It is stated that neither Member A nor Member B will be making contributions into the Fund during the 2012-13 income year and that no contributions will be made on their behalf. That being the case, the Fund will have no active members during that period and the active member test will be satisfied without further enquiry into the percentage of the total market value of the Fund's assets attributable to superannuation interests held by either Member A or Member B, or amounts payable to either member if they voluntarily ceased to be members of the Fund.

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