Initially the Commissioner assessed the Taxpayers under Part XI of the 1936 Act for having an interest in a ‘foreign investment fund’ on the basis that a Samoan superannuation fund (Fund), in which they were members, was not a superannuation fund for Australian tax purposes, but rather a foreign trust estate. Prior to this hearing, the parties agreed that the Fund was an Australian tax resident, but the issue of whether it is a superannuation fund for Australian tax purposes remained.
Section 6(1) of the 1936 Act and section 10 of the SIS Act provide two definitions of a ‘superannuation fund’. In what the Deputy President viewed as ‘a masterstroke of circularity’, paragraph 10(a)(ii) of the above definition required the AAT to determine whether the Fund was a superannuation fund, in order to determine whether it was a superannuation fund. The AAT held, in accordance with common law precedent, that a superannuation fund is a fund which has, as its sole purpose, the provision of benefits to participating employees upon their reaching a prescribed age or upon their retirement, death or other cessation of employment.
The Fund’s deed provided that all rights under the deed flowed from the Taxpayers being employees of a nominated ‘Principal Employer’. However, the AAT found that the Principal Employer had never in fact employed the Taxpayers. Moreover, while the Fund’s deed prescribed a retirement age, it allowed the Taxpayers to receive their benefits in the Fund prior to this age. Therefore the AAT found that the Fund was not a valid superannuation fund within the ordinary meaning of that expression and failed the test at paragraph 10(a)(ii) of the SIS Act.
The AAT held that the Fund was a resident trust estate and, by virtue of the terms of the Fund’s deed, the Taxpayers were presently entitled to a share of the Fund’s income.