Question

An SMSF has three members: Alan, Bruce and Charlene. The percentage of the fund’s assets that is owed to each is as follows:

Alan:         30%

Bruce:       40%

Charlene: 30%

For the 2019-20 year, for tax purposes, Alan and Bruce were non-residents, whereas Charlene was a resident. Also, for the 2019-20 year, Alan made no contributions to the account, whereas Bruce and Charlene both made contributions to their accounts.

For the 2019-20 year, discuss whether the ‘active member test’ under s. 295-95 of the Income Tax Assessment Act 1997 been passed.

Answer 1

INCOME TAX ASSESSMENT ACT 1997 - SECT 295.95

Deductions related to contributions

             (1) Provisions of this Act about deducting amounts apply to these entities as if all contributions made to them were included in their assessable income:

                     (a) * complying superannuation funds;

                     (b) * non-complying superannuation funds that are * Australian superannuation funds;

                     (c) * complying approved deposit funds;

                     (d) * non-complying approved deposit funds;

                     (e) * RSA providers.

Note 1:       This means that the entities can deduct amounts incurred in obtaining the contributions.

Note 2:       Examples of contributions that are not assessable are:

•        contributions which the contributor cannot deduct;

•        contributions excluded from assessable income under Subdivision 295-D.

             (2) 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.

             (3) A member is covered by this subsection at a time if the member is:

                     (a) a contributor to the fund at that time; or

                     (b) an individual on whose behalf contributions have been made, other than an individual:

                              (i) who is a foreign resident; and

                             (ii) who is not a contributor at that time; and

                            (iii) for whom contributions made to the fund on the individual's behalf after the individual became a foreign resident are only payments in respect of a time when the individual was an Australian resident.

             (4) 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.

1.Alan was Non Resident not made any contributions so he is not a active member

2.bruce was non resident and he made contributions..so he is a active member

3. charlene was resident and made contriutions so he is a active member

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