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Ruling

Subject: Taxation treatment of benefits paid by a non-complying superannuation fund

Questions

1. Is the superannuation fund an Australian non-complying superannuation fund for the purposes of section 305-5 of the Income Tax Assessment Act 1997 (ITAA 1997)?

2. Will the benefit to be paid to the sole member of the fund on the wind up of the fund be exempt income of the member?

Answers

1. Yes.

2. Yes.

This ruling applies for the following period:

Year ending 30 June 2013

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

The Fund was established in the 1980's as a defined benefit fund.

The trustee of the Fund is an entity (the trustee).

Your client is the sole director of the trustee and has ultimate control of the sole shareholder of the trustee.

You have stated that the Fund was established in Australia and has its central management and control in Australia.

You have stated that the Fund was a complying superannuation fund in the 1991-92 income year under the Occupational Superannuation Standards Act 1987 (OSSA).

You have also stated that you believe the Fund was a complying fund before this date but you do not have records to confirm this.

The Fund submitted a tax return as a complying superannuation fund under OSSA for the 1991-92 income year and the fund has been dormant since this income year.

From the 1992-93 income year onwards, the Fund has lodged income tax returns as a non-complying fund and has been assessed accordingly.

You have stated the Fund never elected to be a regulated fund under section 19 of the Superannuation Industry (Supervision) Act 1993 (SISA) and has never received a notice of compliance under the SISA.

The Fund is recognised by APRA as a non-regulated fund.

Net assets of the Fund as at 30 June 2012 amounted to X.

The trustee wants to wind up the Fund and distribute the assets in accordance with the trust deed.

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 Section 305.5.

Superannuation Industry (Supervision) Act 1993 Section 45.Superannuation Industry (Supervision) Act 1993 Subsection 45(1).

Reasons for decision

Summary

The Fund is an Australian non-complying fund.

The superannuation benefit the trustee intends to distribute to your client, as a member of the Fund, will be exempt income in the year in which it was paid.

Detailed reasoning

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.

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.

From the facts we can deduce that the Fund is an Australian Superannuation Fund as:

- the fund was established in Australia;
- the central management and control of the fund is ordinarily in Australia; and
- there are no active members of the fund.

Non-complying superannuation fund

A non-complying superannuation fund is a fund that:

(a) is a fund; and
(b) is not a complying superannuation fund.

Section 45 of the Superannuation Industry (Supervision) Act 1993 (SISA) states that for the purposes of the Income Tax Assessment Act 1997 (ITAA 1997) a fund is a complying superannuation fund if, and only if:

(a)  the Regulator has given a notice to a trustee of the fund under section 40 stating that the fund is a complying superannuation fund in relation to the current year of income; or

(b)  the Regulator has given a notice to a trustee of the fund under section 40 stating that the fund is a complying superannuation fund in relation to a previous year of income and has not given a notice to a trustee of the fund under that section stating that the fund was not a complying superannuation fund in relation to:

                              (i)  the current year of income; or

(ii) a year of income that is:

(A) later than that previous year of income; and

(B) earlier than the current year of income.

From the facts, the Fund was a complying superannuation fund up until and inclusive of the 1991-92 income year under the Occupational Superannuation Standards Act 1987 (OSSA).

However, with the introduction of the SISA in 1993, the Fund failed to elect to be regulated by the Australian Prudential Regulation Authority (APRA) and therefore failed to satisfy the requirements under SISA to be recognised as a complying fund.

As the Fund had never registered with APRA to be a regulated fund, it has never been regulated under the SISA and therefore is not a complying superannuation fund under section 45 of the SISA.

Based on this, together with what was previously determined, the Fund is an Australian non-complying fund.

Tax treatment of benefits from Australian non-complying superannuation funds

Section 305-5 of the ITAA 1997 states that a superannuation benefit you receive from an Australian non-complying superannuation fund is exempt income for the income year in which it is paid provided:

(a) the fund:

(i) has never been a complying superannuation fund; or

(ii) last stopped being a complying superannuation fund for the income year in which 1 July 1995 occurred or a later income year; and

(b) the fund:

(i) has never been a foreign superannuation fund; or

(ii) last stopped being a foreign superannuation fund for the income year in which1 July 1995 occurred or a later income year

As determined above, the Fund is an Australian non-complying fund and has never been a complying superannuation fund for the purposes of the definition under section 305-5 of the ITAA 1997.

Therefore, the superannuation benefit the trustee intends to distribute to your client, as a member of the fund, will be exempt income in the income year in which the benefit is paid as all the conditions have been satisfied.