Edited version of private ruling

Authorisation Number: 1011523408425

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Ruling

Subject: Australian superannuation fund

Question:

Is the central management and control of the superannuation fund considered to be ordinarily in Australia for the purposes of the definition of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997?

Answer:

Yes

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commenced on:

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

· The Fund is a single member self a managed superannuation fund which was established in Australia a number of years ago.

· The Fund has a corporate trustee and its director is the member of the Fund.

· The Member will be leaving Australia permanently in the 2010-10 income year.

· The Member will cease to be the trustee of the Fund and the director of the trustee company.

· While the Member is overseas, two individuals will hold an enduring power of Attorney to act as trustees of the Fund and directors of the trustee company dealing with all aspects of investment, tax and Superannuation Industry (Supervision) Act 1993 compliance. The holders of the enduring power of Attorney are not related to the Member of the Fund. They are the tax agent and accountant of the Member and the Fund.

· No remuneration will be received by the holders of the enduring power of Attorney from the Fund or from any person (including the trustee company) for any duties or services performed as trustees of the Fund or the directors of the trustee company in relation to the Fund.

· The Member will not be participating in any strategic and high level decision making activities of the Fund by reviewing or considering the actions of the holders of the enduring power of Attorney.

· The holders of the enduring power of Attorney will be exercising the central management and control of the Fund independently and without any influence from the Member.

This ruling is given on the basis of the facts stated in the description of the scheme as set out above. Any material variation from these facts (including any matters not stated in the description above and any departure from these facts) will mean that the ruling will have no effect. No entity will then be able to rely on this ruling as the Commissioner will consider that the scheme has been implemented in a way that is materially different from the scheme described.

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

The Fund is an Australian superannuation fund as it satisfies all of the requirements of an Australian superannuation fund.

It is considered that the central management and control of the Fund will remain 'ordinarily in Australia'.

Detailed reasoning

From 1 July 2007 the term 'resident superannuation fund' is replaced by the term 'Australian superannuation fund'. Subsection 295-95(2) of the Income Tax Assessment Act 1997 (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.

A fund must satisfy three tests 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. The ruling sets out 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).

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' 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. 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.

The Fund was established in Australia a number of years ago. Therefore, the requirement in paragraph 295-95(2)(a) of the ITAA 1997 has been satisfied.

Test Two - The central management and control 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 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 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 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 strategic or 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 paragraphs 123, 124 and 125 states:

Delegation of trustee's duties and powers

123. Where permitted by the trust deed of the fund or in the circumstances prescribed in the trustee legislation of the relevant State or Territory, and consistent with the provisions of the SISA, the individual trustee or trustees of a superannuation fund may delegate all or any of their duties and powers. For example, in all jurisdictions, the trustee legislation permits a trustee to delegate the execution of the trust where he or she is absent from the jurisdiction or about to depart from it. In accordance with the Corporations Act 2001, the directors of a corporate trustee may also delegate their duties and powers.

124. Where the trustee of a fund delegates their duties to another person, the delegate will be exercising the CM&C of the fund if they independently and without influence from the trustee, perform those duties and activities that constitute CM&C of the superannuation fund.

125. However, if the trustee continues to participate in the strategic and high level decision making and activities of the fund then it cannot be said that the delegate is exercising the CM&C of the fund. The trustee may continue to participate in such activities by reviewing or considering the decisions and actions of the delegate before deciding whether any further action is required. The decision in BW Noble Ltd v. Mitchell (BW Noble) illustrates this principle.

From the above, it can be seen that if a person performs the duties and activities that constitute the CM&C of the fund without any influence from the trustee, that person is exercising the CM&C of the fund.

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, the Trustee of the Fund will be leaving Australia permanently. After the Trustee has left Australia, the registered tax agents and accountants of the Member and the Fund in Australia will be appointed as the holders of the enduring power of Attorney of the Fund.

The applicant confirmed that the Member will not be participating in any strategic and high level decision making and activities of the Fund by reviewing or considering the actions of the holders of the enduring power of Attorney. The holders of the enduring power of Attorney will independently perform the duties and activities that constitute the CM&C of the Fund therefore exercising the high level decision making activities, whilst the Member is overseas.

In view of the above the Commissioner accepts that the CM&C of the Fund whilst the Member is overseas is ordinarily in Australia.

Therefore, the requirements in paragraph 295-95(2)(b) of the ITAA 1997 have been satisfied.

Test Three - the 'active member' test

The terms of paragraph 295-95(2)(c) of the ITAA 1997 contemplate two situations:

· the first situation is that the fund has no active members at a particular time. In this case, paragraph 295-95(2)(c) is satisfied at that time; and

· the second situation is where the superannuation fund does have an active member (as defined in subsection 295-95(3) of the ITAA 1997). In such a situation, the conditions in subparagraphs 295-95(2)(c)(i) and (ii) of the ITAA 1997 must be considered to determine whether the fund satisfies the active member test.

In this case, the Fund will not have any active members as no contributions will be made in the 2010-11 income year therefore the requirements of paragraph 295-95(2)(c) of the ITAA 1997 have been satisfied.

Conclusion

For the Fund to be considered an Australian superannuation fund all the conditions for the purposes of subsection 295-95(2) of the ITAA 1997 need to be satisfied.

As all of the tests mentioned above have been satisfied it is considered that the Fund is, and will remain, an Australian superannuation fund for the purposes of subsection 295-95(2) of the ITAA 1997, for the 2010-11 income year.

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