If you are a trustee and/or member of a Self-Managed Superannuation Fund (SMSF), then you need to consider whether your SMSF will remain compliant if you move overseas.
In order to operate in the concessional tax environment afforded to super funds, a SMSF needs to be an “Australian super fund” and meet three residency conditions:
- Location of the SMSF
- The SMSF must have been established in Australia.Whilst it is not necessary that the SMSF deed was signed in Australia, it is necessary that the capital of the SMSF is paid and accepted by the Trustee of the SMSF in Australia.
- Alternatively, if the SMSF was not established in Australia, at least one asset of the SMSF must be located in Australia at all times.
- Central Control and Management of the SMSF
- The ultimate control and management of the SMSF must be performed in Australia. The Tax Office focuses on who, when and where strategic and high level decisions and activities of the SMSF are performed. This includes decisions around the investment strategy, management and use of assets of the SMSF. It does not necessarily include ancillary day to day activities, such as accepting contributions, actual investment and the payment of benefits.
- The Tax Office provide a safe harbour where the central control and management of a SMSF is temporarily outside of Australia for up to 2 years. However, this must be temporary.If there is no intention of the central control and management returning to Australia, than the safe harbour provision does not apply.
- Where the central control and management is equally split between Australia and overseas, the Tax Office will generally accept that the central control and management is ordinarily in Australia.
- Active members
- A member of the SMSF is active if they are making contributions to the SMSF or contributions are being made on their behalf.
- However, if contributions are being made on their behalf, they are not active members if they are also:
- Foreign residents;
- Not making any contributions themselves; and
- The only contributions made by them were when they were an Australian resident.
- If there are non-active members of the SMSF, then the SMSF will remain compliant if at least 50% the assets and benefits payable by the SMSF are held by active members.
Non-compliance with these three residency conditions means that the SMSF will not receive the tax concessions available to Australian super funds. Rather, the SMSF will be taxed at the highest marginal tax rate.
If your SMSF will not be compliant when you move overseas, then you may consider contributing to an industry or retail super fund and rolling over your contributions to your SMSF when you revert to being an Australian resident. If you have no intention of reverting to Australian residency, then you may consider contributing to an international fund. We would encourage you to seek advice on the taxation and succession laws of that country.