[The Auditors Institute Ltd]

Hello Michael

Thanks for your question.

To be a “complying superannuation fund” a fund needs to meet the definition of an “Australian superannuation fund” as per section 295-95(2) of the Income Tax Assessment Act 1997 (ITAA 1997).

There are three requirements that need to be satisfied to be an Australian superannuation fund for the income year in question:

1. The fund needs to have been established in Australia, or any asset of the fund is situated in Australia at a time during the relevant income year;
2. The central management and control (CM&C) of the fund is ordinarily in Australia; and
3. The active member is satisfied.

The first test is fairly obvious and does not require further consideration.

The second test is the focus of your question.

The CM&C of the fund needs to be ordinarily in Australia.

Where the fund has a corporate trustee with two directors, one permanently in Australia, and the other routinely outside of Australia (the focus of your question), the ATO is likely to conclude that the CM&C is still located in Australia.

In particular, please refer to paragraph 35 of Taxation Ruling TR 2008/9:

https://www.ato.gov.au/law/view/document?DocID=TXR/TR20089/NAT/ATO/00001

35. Where there is an equal number of individual trustees or directors of a corporate trustee located in Australia and overseas and each of those trustees/directors substantially and actively participate in the exercise of the CM&C of the fund from those locations, it is accepted that the CM&C of the fund will ordinarily be in Australia within the meaning of paragraph 295-95(2)(b) of the ITAA 1997. This will be the case despite the fact that the CM&C of the fund is also ordinarily being exercised overseas.

The third test is referred to as the active member test.  Mindful, that all three tests need to be satisfied for the fund to be an Australian superannuation fund (and therefore, eligible to be a complying superannuation fund).

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; 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.

An ‘active member’ is a person who is a contributor to a superannuation fund during an income year, or a person for which contributions are being made on their behalf (such as employer contributions).

Concluding remarks

If you are satisfied that the CM&C of this fund is located in Australia, then it would not be necessary to change the identity of the directors of the corporate trustee.

However, if there were still concerns, then consideration should be given to appointing a legal personal representative who holds an enduring power of attorney for the fund member that lives mainly overseas, such that they become a director of the corporate trustee on behalf of the overseas based fund member (the overseas based fund member would resign their directorship if this was to occur).

This would help ensure that the CM&C of the fund is in Australia.

This concept is considered in more detail in SMSFR 2010/2:

https://www.ato.gov.au/law/view/document?src=hs&pit=99991231235958&arc=false&start=1&pageSize=10&total=7&num=0&docid=SFR%2FSMSFR20102%2FNAT%2FATO%2F00001&dc=false&stype=find&tm=phrase-basic-SMSFR%202010%2F2

Best regards

The Auditors Institute