Edited version of private advice

Authorisation Number: 1052126739455

Date of advice: 7 June 2023

Ruling

Subject: Residency of superannuation fund

Question

Is the Self-Managed Superannuation Fund (the Fund) an Australian superannuation fund as defined in subsection 295-95(2) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following periods:

Income year ended 30 June 2021

Income year ended 30 June 2022

Income year ending 30 June 2023

Income year ending 30 June 2024

Relevant facts and circumstances

The member (Member 1) and their spouse (Member 2) are both trustees and members of the Fund.

Both members are Australian residents for tax purposes.

In the 2020-21 income year, Member 1 left Australia for two and a half years for study and work purposes.

Member 2 remained living in Australia.

Member 1 does not currently have a fixed place of residence and is currently overseas. He intends to return to Australia in late 2023.

Member 1 has significant ties to Australia. He has an Australian company and maintains several Australian bank accounts. Additionally, much of his family remains living in Australia. Member 1's assets including superannuation, personal effects and tools of trade are in Australia.

Member 1 and Member 2 have a permanent abode in Australia.

None of the assets in the Fund are attributable to Member 2.

Member A made a voluntary contribution to the Fund in the 2021-22 income year.

No employer contributions were made in the income year ended 2022.

No contributions have been made in the 2022-23 income year.

Member 1 is now retired and does not intend to seek employment again.

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)

We followed these ATO view documents

Taxation Ruling TR 2008/9 titled Income tax: meaning of Australian superannuation fund in subsection 295-95(2) of the Income Tax Assessment Act 1997

Reasons for decision

Summary

For the relevant period, the Commissioner accepts that all conditions in subsection 295-95(2) of the ITAA 1997 have been satisfied for an Australian Superannuation Fund.

Detailed reasoning

Subsection 295-95(2) of the ITAA 1997 defines the meaning of 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 titled 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.

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.

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.

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 Taxation Ruling 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.

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. 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.

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 relation to temporary absences, subsection 295-95(4) of the ITAA 1997 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.

Paragraphs 31 to 34 of TR 2008/9 state:

If the CM&C of the fund is outside of Australia for a period greater than 2 years, the fund will satisfy the CM&C test if it satisfies the 'ordinarily' requirement in paragraph 295-95(2)(b) of the ITAA 1997.

While the CM&C of a fund can be outside Australia for a period greater than 2 years, the period of absence must still be temporary. Furthermore, if the CM&C of the fund is not temporarily outside Australia it will not be 'ordinarily' in Australia at a time even if the period of absence of the CM&C is 2 years or less.

The CM&C of a fund will be 'temporarily' outside Australia if the person or persons who exercise the CM&C of the fund are outside Australia for a relatively short period of time and during that time they exercise the CM&C of the fund overseas. The duration of the absence must either be defined in advance or related (both in intention and fact) to the fulfilment of a specific, passing purpose. Whether an absence is considered to be temporary involves consideration of questions of degree which must be decided by reference to the circumstances of each particular case.

Whether an absence is temporary must be determined objectively by reference to all the relevant facts and circumstances on a 'real time' basis. That is, it cannot be established in retrospect.

In this instance, Member 1 has been managing the Fund while they are overseas. Member 2, while a trustee of the Fund, is not involved in the management of the Fund.

Consequently, Member 1 is making the high level strategic decisions while residing overseas. However, Member 1 is overseas for the specific purpose of study and seeking further employment. Member 1 never intended this absence to be permanent and intends to return to Australia in late 2023. Therefore, it can be said that the CM&C of the Fund is temporarily outside Australia.

Test Three: The active member test

The third test that a fund is required to satisfy to be an Australian superannuation fund is the 'active member' test. Paragraph 69 of Taxation Ruling TR 2008/9 states:

69..... 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).

The definition of 'active member' is contained in subsection 295-95(3) of the ITAA 1997. 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 (paragraph 295-95(3)(a) of the ITAA 1997) or is an individual on whose behalf contributions have been made (paragraph 295-95(3)(b) of the ITAA 1997).

In this instance, a contribution was made by Member 1 in late 2021, after he had departed Australia. No contributions have been made to the Fund since this date. Therefore, in the 2021-2022 income year, Member 1 was an active member of the Fund.

However, 100% of the Fund's assets are attributable to Member 1 who was an Australia resident at all times. Consequently, in the 2021-2022 income year, the active member test was satisfied.

In the 2022-23, no contributions were made by either Member 1 or Member 2. Therefore, the Fund can be said to have no active members.

Consequently, the third test is satisfied.

Conclusion

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

As all requirements under subsection 295-95(2) of the ITAA 1997 have been satisfied, the Fund is considered to be a complying Australian superannuation fund up until Member 1 returns in late 2023.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).