Edited version of private advice

Authorisation Number: 1051807649739

Date of advice: 17 March 2021

Ruling

Subject: Residency status of a self-managed superannuation fund

Question

Will the self-managed superannuation fund satisfy the definition of an Australian superannuation fund contained within subsection 295-95(2) of the Income Tax Assessment Act 1997 (ITAA 1997) for the 20XX-XX income year?

Answer

Yes.

This ruling applies for the following period:

Income year ending 30 June 20XX

This scheme commences on:

1 July 20XX

Relevant facts and circumstances

The self-managed superannuation fund has four members.

Member 1 of the self-managed superannuation fund is retired and is currently receiving a superannuation income stream from the self-managed superannuation fund. Member 1 also has an accumulation account within the self-managed superannuation fund but is not receiving any superannuation contributions.

Member 2 of the self-managed superannuation fund has an accumulation account within the self-managed superannuation fund. The accumulation account for Member 2 within the self-managed superannuation fund is currently receiving superannuation guarantee contributions.

Member 3 and Member 4 of the self-managed superannuation fund also have an accumulation account within the self-managed superannuation fund. Their accumulation accounts within the self-managed superannuation fund are currently receiving superannuation guarantee contributions as well as salary sacrificed contributions.

Within the request for advice we received, we were also advised the following:

•         Member 1 and Member 2 are planning on temporarily residing overseas for a period of up to two years. They have clear intentions to return back to Australia.

•         Whilst Member 1 and Member 2 are temporarily residing overseas, Member 3 and Member 4 will continue to reside in Australia.

In a telephone conversation between Member 1 and a tax officer from the Australian Taxation Office, we were advised that the processing priority of the request for advice had been increased several times but had not yet been actioned. We confirmed that the request for advice had now been allocated to be actioned and provided the contact details of the case officer involved. We also confirmed that a response to the request for advice would be provided shortly.

In a telephone conversation between Member 1 and a tax officer from the Australian Taxation Office, we discussed the request for advice as well as the application of Taxation Ruling TR 2008/9 Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997 (TR 2008/9). We also discussed the taxation consequences of becoming a non-complying superannuation fund as well as contributions a self-managed superannuation fund can accept.

In an email addressed to Member 1 sent from a tax officer from the Australian Taxation Office, we provided general guidance on the residency status of self-managed superannuation funds, contributions a self-managed superannuation fund can accept and the taxation consequences of becoming a non-complying superannuation fund.

In an email addressed to a tax officer from the Australian Taxation Office sent from Member 1, we were advised that the general guidance provided was not sufficient as it did not adequately address the issues raised within the initial request for advice.

In a telephone conversation between Member 1 and a tax officer from the Australian Taxation Office, we confirmed that the general guidance provided was not sufficient and that a private ruling should be completed instead. We also confirmed the following:

The private ruling should be completed for the 20XX-XX income year as Member 1 and Member 2 would be temporarily residing overseas during the 20XX-XX income year.

•         Member 1 and Member 2 would be temporarily residing overseas for a period of not more than two years.

•         The self-managed superannuation fund was established in Australia.

•         All members of the self-managed superannuation fund would be actively and substantially participating in the central management and control of the self-managed superannuation fund (through electronic means).

•         Member 2 would not be receiving any superannuation guarantee contributions whilst temporarily residing overseas.

During the telephone conversation, we indicated a timeframe for when the private ruling would be completed. We also discussed the information available on our website about the residency status of self-managed superannuation funds and edited versions of private rulings. We confirmed that if any further guidance was required about contributions a self-managed superannuation fund can accept, it would be requested separately in the future.

In a telephone conversation between Member 1 and a tax officer from the Australian Taxation Office, we provided an update on the progress of the private ruling. We advised that a Private ruling application form would need to be completed and agreed that the facts and circumstances for the private ruling had already been provided. We were advised that a Private ruling application form may not be completed until the middle of next week. We provided instructions on how to locate a Private ruling application form on our website and confirmed that the private ruling would be issued as soon as it had been quality assured and finalised.

In an email addressed to a tax officer from the Australian Taxation Office sent from Member 1, we were provided with a completed Private ruling application form which contained the facts and circumstances outlined above.

Relevant legislative provisions

Income Tax Assessment Act 1997,subsection 295-95(2)

Income Tax Assessment Act 1997,subsection 295-95(3)

Income Tax Assessment Act 1997,subsection 295-95(4)

Reasons for decision

Summary

The self-managed superannuation fund will be an Australian superannuation fund for the 20XX-XX income year as it will satisfy the three tests contained within subsection 295-95(2) of the ITAA 1997 for that income year.

Detailed reasoning

Subsection 295-95(2) of the ITAA 1997

Subsection 295-95(2) of the ITAA 1997 contains the definition of an Australian superannuation fund. It states:

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.

The definition of an Australian superannuation fund and its interpretation is further explained within TR 2008/9.

TR 2008/9 states that there are three tests a superannuation fund must satisfy before it can be treated as an Australian superannuation fund. These tests require:

•         The superannuation fund to be established in Australia or have an asset situated within Australia;

•         The central management and control of the superannuation fund to be 'ordinarily' in Australia; and

•         The 'active member' test to be satisfied.

If a superannuation fund fails to satisfy any one of these three tests at a particular time, it will not be an Australian superannuation fund at that time, even if it satisfies the other two tests.

First Test: The superannuation fund must be established in Australia or have an asset situated within Australia

A superannuation fund must be established in Australia or have an asset situated within Australia at the relevant time to be an Australian superannuation fund. This is a question of fact based on the relevant facts and circumstances of each case.

To bring a superannuation fund into existence:

•         The trust deed of the superannuation fund must be signed and executed; and

•         Money (or other property) must be transferred to the trustee of the superannuation fund as an initial contribution to be held on trust for the members of the superannuation fund.

A superannuation fund will be established in Australia if the initial contribution to be held on trust for the members of the superannuation fund is paid to and accepted by the trustee of the superannuation fund in Australia.

This is a once and for all requirement. That is, once it has been determined that a superannuation fund was established in Australia, it will satisfy the first test at all relevant times.

The requirement that a superannuation fund must have an asset situated in Australia within the first test only needs to be considered in circumstances where a superannuation fund has not been established in Australia.

Second Test: The central management and control of a superannuation fund must be 'ordinarily' in Australia

The central management and control of a superannuation fund must also be 'ordinarily' in Australia. The concept of central management and control of a superannuation fund is not defined within the ITAA 1997 and therefore it takes its meaning from the context in which it appears.

The central management and control 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 superannuation fund.

The strategic and high-level decision-making processes of a superannuation fund include:

•         Formulating an investment strategy for the superannuation fund;

•         Reviewing, updating or varying the investment strategy for the superannuation fund;

•         Monitoring and reviewing the performance of the investments made by the superannuation fund;

•         Formulating a strategy for the prudential management of reserves (if required); and

•         Deciding how the assets of the superannuation fund are to be used to fund member benefits.

Establishing who is exercising the central management and control of a superannuation fund is a question of fact based on the relevant facts and circumstances of each case.

While the trustees of a superannuation fund have a legal responsibility to exercise the central management and control of the superannuation fund, this legal responsibility or duty, of itself, does not constitute central management and control. The trustees of a superannuation fund will only be exercising the central management and control of the superannuation fund if they in fact perform the strategic and high-level decision-making processes and activities of the superannuation fund in practice.

The location of the central management and control of a superannuation fund is determined by where the strategic and high-level decision-making processes and activities are performed. Whether the central management and control of a superannuation fund is 'ordinarily' in Australia at a particular time involves determining if, in the ordinary course of events, the central management and control of the superannuation fund is regularly, usually or customarily exercised in Australia.

If the central management and control of a superannuation fund is being temporarily exercised outside of Australia, this will not prevent the central management and control of the superannuation fund from being 'ordinarily' in Australia at a particular time.

Subsection 295-95(4) of the ITAA 1997 provides a circumstance in which the central management and control of a superannuation fund will be 'ordinarily' in Australia. It 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.

Subsection 295-95(4) of the ITAA 1997 does not otherwise restrict the meaning of 'ordinarily' so that the central management and control of a superannuation fund can only be outside Australia for a period of two years or less. The central management and control of a superannuation fund can be outside of Australia for a period of greater than two years provided the period of absence of the central management and control of the superannuation fund is still temporary.

Establishing whether an absence is temporary is determined objectively with reference to all the relevant facts and circumstances of each case on a 'real time' basis. That is, it cannot be established in retrospect.

Where there are an equal number of trustees located in Australia and overseas and each of those trustees substantially and actively participate in the exercise of the central management and control of the superannuation fund from those locations, the central management and control of the superannuation fund will be 'ordinarily' in Australia. This will be the case despite the fact that the central management and control of the superannuation fund is also being 'ordinarily' exercised overseas.

Third Test: The 'active member' test

A superannuation fund must satisfy the 'active member' test to be an Australian superannuation fund at a particular time.

The 'active member' test will be satisfied, if at the relevant time:

•         the superannuation fund has no 'active members'; or

•         at least 50% of the total market value of the superannuation 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.

Subsection 295-95(3) of the ITAA 1997 contains the definition of an 'active member'. It states:

A member is covered by this subsection at a 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' is not defined within the ITAA 1997 and therefore it takes its meaning from the context in which it appears. Establishing whether a member is a 'contributor' at a particular point in time is determined by reviewing all the relevant facts and circumstances of each case. Consideration should be given to the member's intention established by reference to objective evidence such as the member's pattern of conduct having regard to contributions that were made and contributions that may be made to the superannuation fund by the member.

Where a member of a superannuation fund has been making contributions over a period of time intends to, and in fact, ceases to make further contributions, they will no longer be a 'contributor' from the time they formed that intention. However, if the member later intends to, and in fact, makes further contributions, their status as a 'contributor' will be reinstated.

Application to your circumstances

The self-managed superannuation fund must satisfy the three tests contained within subsection 295-95(2) of the ITAA 1997 to be treated as an Australian superannuation fund for the 2021-22 income year.

Given the relevant facts and circumstances of this case, the self-managed superannuation fund will satisfy the first test contained within subsection 295-95(2) of the ITAA 1997 for the 2021-22 income year as it was established in Australia.

It will also satisfy the second test contained within subsection 295-95(2) of the ITAA 1997 for the 2021-22 income year as:

•         Member 1 and Member 2 would be temporarily residing overseas for a period of not more than two years.

•         All members of the self-managed superannuation fund would be actively and substantially participating in the central management and control of the self-managed superannuation fund (through electronic means).

The self-managed superannuation fund will also satisfy the third test contained within subsection 295-95(2) of the ITAA 1997 for the 2021-22 income year as Member 3 and Member 4 will continue to reside in Australia and will be the only 'active members' of the self-managed superannuation fund whilst Member 1 and Member 2 are temporarily residing overseas. Therefore, at least 50% of the total market value of the self-managed superannuation fund's assets attributable to superannuation interests held by 'active members', will be attributable to superannuation interests held by 'active members' who are Australian residents.

Given that the self-managed superannuation fund will satisfy the three tests contained within subsection 295-95(2) of the ITAA 1997 for the 20XX-XX income year, it will be treated as an Australian superannuation fund for that income year.

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