Revised Explanatory Memorandum
(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)Chapter 4 - Superannuation fund residence requirements
Outline of chapter
4.1 The amendments made by items 1 to 4 of Schedule 3 will allow a superannuation fund, in particular a self-managed superannuation fund, to retain its residency status while the trustees and/or members of the fund are temporarily overseas if certain conditions are met.
Context of amendments
4.2 In order to be a complying superannuation fund under the SIS Act,and to therefore be taxed concessionally as well as be able to accept superannuation guarantee contributions, a fund must satisfy, amongst other things, the definition of a resident superannuation fund in the ITAA 191936 at all times during the year.
4.3 The definition of resident superannuation fund determines the residency status of a fund at a point in time. However, if at any point in time during the year a fund is not a resident superannuation fund, then it is not a complying superannuation fund for the entire year under the SIS Act.
4.4 One of the requirements of the definition of resident superannuation fund is that the central management and control of the fund must be in Australia. Consequently, if the majority of trustees are temporarily overseas the fund may fail the central management and control test. This would mean that the fund is not a resident superannuation fund and consequently the fund is not a complying superannuation fund for the entire year.
4.5 Another of the requirements of the definition of a resident superannuation fund is that the entitlements of resident active members be at least equal to 50% of the entitlements of all active members. If a non-resident member receives a contribution at any stage during the year, they become a non-resident active member even if the contribution relates to a period when they were a resident. Becoming a non-resident active member may mean that the fund fails the 50% test and therefore fails the residency test at that point in time. Consequently, the fund would not be a complying fund for the entire year.
Summary of new law
4.6 The amended provisions will enable a fund to retain its residency status while the trustees of the fund are temporarily overseas for a period of up to 2 years and will also enable a non-resident member to receive superannuation contributions in respect of a period in which they were a resident member without them subsequently becoming a non-resident active member.
| New law | Current law |
|---|---|
| A superannuation fund can retain its residency status while the funds trustees are temporarily overseas for a period of up to 2 years. | Where trustees are overseas, the superannuation fund may fail the central management and control test and thus not be a resident superannuation fund. |
| If a non-resident member of a superannuation fund receives superannuation contributions in respect of a period in a year in which they were a resident this alone will not make them a non-resident active member for that entire year. | If a non-resident member of a superannuation fund receives superannuation contributions in respect of a period in a year in which they were a resident this alone will make them a non-resident active member for that entire year. |
Detailed explanation of new law
4.7 Paragraph 6E(1)(c) is repealed and replaced by new paragraph 6E(1)(c) which requires that the central management and control of the fund is in Australia or that the fund satisfies subsection 6E(1A) or 6E(1B). [Schedule 3, item 1]
4.8 Subsection 6E(1A) deals with funds that have individuals as trustees and where one or more of those trustees is temporarily overseas for a period that does not exceed 2 years or a longer period, if one is specified in circumstances outlined in the regulations. Such a fund satisfies the subsection if it is the case that if the trustee or trustees were in Australia then the central management and control of the fund would be in Australia. [Schedule 3, item 2]
Example 4.1
Jack and Jill are trustees of the Hill Superannuation Fund. During the year Jack and Jill work overseas for 4 months. As they are temporarily overseas for a continuous period of less than 2 years, and had they been in Australia during that time the central management and control of the fund would have been in Australia, they satisfy subsection 6E(1A) which in turn satisfies paragraph 6E(1)(c) of the residency test.
4.9 Subsection 6E(1B) deals with funds that have a corporate trustee and where one or more of the directors of the trustee is temporarily overseas for a period that does not exceed 2 years or a longer period, if one is specified in circumstances outlined in the regulations. Such a fund satisfies the subsection if it is the case that if the director or directors were in Australia then the central management and control of the fund would be in Australia. [Schedule 3, item 2]
4.10 In determining whether a trustee or director of a trustee company has been outside of Australia for a continuous period not exceeding 2 years subsection 6E(1C) states that a person that returns to Australia for a continuous period of 28 days or less is treated as being outside Australia for that period. While the time overseas must always meet the temporary requirement of paragraphs 6E(1A)(a) and 6E(1B)(a), subsection 6E(1C) is designed to provide clarity that short trips back to Australia cannot be used to re-trigger the 2 year period. This is achieved by providing that during such trips the individual is considered to still be overseas. [Schedule 3, item 2]
4.11 Subsection 6E(4A) defines a member of a fund as an active member of the fund at the relevant time if the member of the fund is a contributor to the fund at that time, or another person has made a contribution to the fund on the members behalf at any time in respect of the year of income in which the relevant time occurs. This is the same as the existing definition in subsection 6E(5) but is now affected by new subsection 6E(4B). [Schedule 3, item 3]
4.12 Subsection 6E(4B) excludes a member of a fund from being an active member at the relevant time if at the time they are not a resident of Australia, they are not a contributor and the only contributions that have been made on their behalf since they ceased being a resident were made in respect of a time when they were a resident. [Schedule 3, item 3]
Example 4.2
Mark, John and Harry are members of the MJH Superannuation Fund and are all Australian residents. Harrys employer makes a superannuation contribution for Harry in July. Harry ceases to be a resident of Australia in August. From that time on Harry is not a contributor to the fund and does not have any contributions made to the fund on his behalf. He is therefore not an active member at any stage during that time. In October a further contribution is made for Harry by the employer in relation to work carried out by him in July. As Harry is not a resident and both the July and October contributions relate to a period when Harry was a resident, he does not become a non-resident active member because of the contributions.
4.13 The definition of active member in subsection 6E(5) is repealed and replaced by the definition of active member in subsection 6E(4A) and the definition of when a member is not an active member in 6E(4B) (see paragraphs 4.11 and 4.12 respectively). [Schedule 3, item 4]
Application and transitional provisions
4.14 This measure was announced in Assistant Treasurers Press Release No. 49 of 4 October 2000.
4.15 The amendments will apply from the date of Royal Assent.