When members of an SMSF is thinking about moving overseas, there are a number of factors to consider to ensure their SMSF maintains its status as a complying super fund. Failure to do so will result in the super fund being deemed non-complying and a tax of almost 50% levied on the total assets of the Fund – making it a very expensive overseas move.

ATO’s SMSF residency requirements

The ATO has 3 key criteria when determining whether an SMSF is an Australian superannuation Fund.

1. The SMSF was established in Australia, or at least one of the SMSF’s assets are in Australia,
2. The central management and control of the SMSF is ordinarily undertaken in Australia (ie the trustees make their decisions here). There is a two-year safe harbor period for those temporarily residing outside of Australia; and
3. If the Fund has members actively contributing to the fund, at least 50% of the SMSF Membership (measured by market value) must be in Australia.

Note: The 2021 budget proposed to extend the central management/control time frame to 5 years and to scrap the active member test however these measures are yet to be legislated.

Criteria 1 & 3 are generally relatively easily navigated; you simply need to have an Australian bank account and cease contributions respectively, however maintaining control in Australia when overseas for an extended period or an unknown period can be problematic.

Intentions Matter

Where you are overseas on a temporary basis; 2 years, your decisions are ordinarily in Australia and will be again. Therefore, you can continue to make Fund decisions whilst overseas.

However, when you intend to leave; sell home/cars, close Australian bank accounts etc, you will not be able to ordinarily make decision in Australia again and as such you are not entitled to the two-year overseas window and your Fund either needs to transfer central management & control or wind up.

Transferring Control

Usually, every SMSF member must be a trustee or a director of its trustee company. However, you can appoint a trusted Australian-based person to act as trustee/director on your behalf via an enduring power of attorney (EPOA) – effectively transferring your duties to an Australian resident.

You will need to resign as a trustee/director and effectively hand over “control” to your EPOA.

Wind Up

If you are no longer an Australian tax resident and are uncomfortable with transferring control – the remaining option is to close the SMSF and dependent on you age – roll the money into an industry/retail superfund (for those under retirement age) or take the money as a pension payment (for members over retirement age).

Summary

SMSFs and living overseas can work. However, the penalties for getting wrong are exceptionally severe. the viability of maintaining your SMSF when overseas will be based on the amount of super you have, how long you will be overseas and your tolerance for paperwork. If you are thinking about moving overseas or travelling for an extended period, it is worth talking to your accountant and tax lawyer.

 

How Can Alto Help?

Alto can help you understand the requirements if you are moving overseas and consider your circumstances to ensure you don’t get stung with a nasty tax bill.

Author: Scott Coghlan