If you have set decided to move overseas and you are a Trustee because you have a Self-Managed Super Fund (SMSF), what are the issues you need to consider?
When you have an SMSF, one of the complying requirements is Australian Residency
I have highlighted key parts below, but in Summary, an essential part of compliance is Residency, where management and control (ordinarily in Australia) is temporarily overseas for up to 2 years. It will not pass if management is Permanently outside Aust. (see further below).
This is what the ATO (Australian Tax Office, the Regulator of SMSF) website currently explains (I have highlighted key parts)
Check the residency of your fund
To be a complying super fund and receive tax concessions, your fund needs to be a resident regulated super fund at all times during the income year. This means your fund needs to meet the definition of an ‘Australian superannuation fund’ for tax purposes. If your fund is a non-complying fund, its assets (less certain contributions) and its income are taxed at the highest marginal tax rate.
If a member moves or travels overseas for an extended period, this may affect the residency status of the fund.
Your fund needs to meet certain conditions to be an ‘Australian superannuation fund’. For more information, refer to Residency of self-managed super funds. (see next)
Last modified: 17 Apr 2014QC 23312
(Above From – https://www.ato.gov.au/Super/Self-managed-super-funds/Setting-up-an-SMSF/Check-the-residency-of-your-fund/ detailed next…)
Residency of self-managed super funds (from link above)
For your self-managed super fund (SMSF) to receive tax concessions, it must be a complying super fund. To be a complying super fund, your SMSF must satisfy the residency test. To satisfy the residency test, your SMSF must meet the definition of an Australian superannuation fund. What is the residency test? As a trustee, you must make sure your fund meets all conditions of the residency test to ensure it qualifies as an Australian superannuation fund. The residency test has three elements:
- Your fund was established in Australia, or at least one of the fund’s assets is located in Australia;
- The central management and control of your fund is ordinarily in Australia;
- Your fund must have no active members or have active members who are Australian residents and who hold at least 50% of:
- The total market value of your fund’s assets attributable to super interests; or
- The sum of the amounts that would be payable to active members if they decided to leave the fund.
When is a fund established in Australia? An SMSF is established in Australia when you are paid and accept the initial contribution to establish the fund in Australia. What is ‘the central management and control’ of the fund? ‘The central management and control’ of your SMSF is the strategic and high level decision-making processes of the fund. These include carrying out duties like:
- Formulating the investment strategy of the fund;
- Reviewing the performance of the fund’s investments.
These duties are generally performed by you as the trustee of the fund. What does ‘ordinarily in Australia’ mean? We accept the central management and control of your fund is ordinarily in Australia if the SMSF’s strategic decisions are regularly made, and high level duties and activities are performed, in Australia. In some situations, a fund’s central management and control may be outside Australia for a period of time. In general, your fund will still meet the ‘ordinarily’ requirement if its central management and control is temporarily outside Australia for up to two years. If the central management and control of the fund is permanently outside Australia for any period, you will not meet this requirement. Whether the central management and control of your fund is ordinarily in Australia is based on the fund’s circumstances at that time. When is a member an active member? A member is considered to be an active member of your SMSF if:
- They are a contributor to the fund;
- Contributions to the fund have been made on their behalf.
However, a member is not an active member if contributions have been made to the fund on their behalf and:
- They are not a resident of Australia;
- They have ceased to be a contributor;
- The contributions made on their behalf after they ceased to be an Australian resident were made for the time they were an Australian resident.
What happens if your SMSF doesn’t satisfy the residency rules? Your SMSF must satisfy the residency rules at all times to be eligible for the tax concessions available to complying super funds. There are tax consequences if your fund becomes non-complying. If your fund stops being a complying fund because it does not satisfy the residency rules and therefore cannot meet the definition of an Australian superannuation fund, an amount equal to the market value of the fund’s total assets (less any contributions the fund has received that are not part of the taxable income of the fund) will be included in the fund’s assessable income. This amount is taxed at the highest marginal tax rate. For every year that the fund remains non-complying, its assessable income is taxed at the highest marginal tax rate. Here are some ways to avoid these consequences:
- If members are planning on going overseas, the SMSF trustees should seek professional advice to ensure they maintain the residency status of their SMSF;
- *********If an SMSF fails the residency test the trustees should rollover their funds to a resident regulated super fund and wind up the SMSF. Failure to do this leaves us with no option other than to make the fund non-complying;
- If a non-resident member of an SMSF wishes to make or receive contributions they should consider making or receiving these outside of their SMSF, for example to a retail or industry super fund. They can then rollover the contributions to their SMSF when they return as an Australian resident for tax purposes.
For more information on super fund residency rules, see Taxation Ruling TR 2008/09.
(Above From HERE)
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