Edited version of your private ruling

Authorisation Number: 1012507518738

Ruling

Subject: Residency status of the superannuation fund.

Question

Is the superannuation fund (the Fund) an Australian superannuation fund as defined in subsection 295-95(2) of the Income Tax Assessment Act 1997 in the 2013-14 income year?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2014

The scheme commenced on:

1 July 2013

Relevant facts and circumstances

The Member is the sole member of the Fund.

The Member is the director of a corporate trustee governing the Fund.

The Member currently operates a business overseas and therefore resides overseas with his/her spouse and child. The Member travels back to Australia once a month and stays for around 10 days at a time.

The reason for Member's visits to provide support for his/her previous business in Australia which in turn helps support his/her current business overseas.

The Member's other reason for his/her visits are to see his/her children.

The Member no longer has direct business interests in Australia. His/her previous business in Australia is now a customer of his/her foreign business. On his/her trips to Australia, the member does some business relationship work for his/her previous Australian business and its customer. He/She is provided with a car and phone to conduct this work but does not derive an income.

No decisions relating to the Fund are made or will be made while the Member is overseas.

All decisions regarding the Fund are only made whilst the Member is in Australia and in consultation with his/her accountant and financial adviser. Trustee meetings are only conducted in Australia.

The Member is still intending to reside in Australia in the near future. Whilst no date has been given, the approximate time frame from now is about two years.

The Fund was established in Australia during the 1998-99 income year.

The Member advises he/she is a non-resident for tax purposes for the 2013-14 income year and has been since the 2011-12 income year.

ATO records indicate the Fund has included 'Employer contributions' of X and Y for the 2011 and 2012 income years respectively in its assessable income.

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 not an Australian superannuation fund. For the year ended 30 June 2012 contributions have been made for the non-resident member. As this is the last year for which income and regulatory returns have been lodged, the Fund will continue to fail the definition of an Australian Superannuation Fund until advised otherwise.

Detailed reasoning

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.

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 CM&C 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 Superannuation Legislation Amendment (Simplification) 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 policy intention of the amendment was to simplify the scope of the superannuation fund residency definition and give effect to a minor policy change in respect of the application of the CM&C test.

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 funds investment strategy as well as monitoring and reviewing the performance of the funds 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.

In this case, the sole member of the Fund currently resides overseas with his/her spouse and child. The Member spends X days in Australia and Y weeks in the foreign country. The member is a non-resident for taxation purposes and advises that all decisions relating to the Fund are made during these visits to Australia. In addition, all trustee meetings and meetings with accountants and financial advisors are also held in Australia. In view of this and subsection 295-95(4) of the ITAA 1997, it is considered the CM&C of the Fund is in Australia and subsection 295-95(2) is satisfied.

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).

As your client has been a non-resident for income tax purposes since the 2011-12 income year, they cannot satisfy the second or third criterion set out above.

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).

Our records indicate the Fund included 'Employer contributions' of Y in its 2012 income tax and regulatory return. As these contributions can only be for the benefit of the Fund's only member (a non-resident), the Fund fails the 'active member' test in the 2012 financial year. As the Fund has not yet lodged income and regulatory information for the 2013 and 2014 income years, the Fund will continue to fail the definition of an Australian Superannuation Fund.

Conclusion:

The Fund is not an Australian Superannuation Fund. For the year ended 30 June 2012 contributions have been made for the non-resident member. As this is the last year for which income and regulatory returns have been lodged, the Fund will continue to fail the definition of an Australian Superannuation Fund until advised otherwise.