FAQ: My wife and I share a SMSF with our Australian resident children. We plan to move overseas indefinitely. Can we still be members of our SMSF?
It is possible to remain a member of your SMSF, however there are certain requirements that would need to be met in order to meet the superannuation rules.
A full picture of SMSF residency issues can be found in the tax ruling, TR 2008/9. To follow are the basics:
One of the requirements for a SMSF to have its income taxed at concessional rates is that it must meet the definition of an ‘Australian’ superannuation fund.
To be an ‘Australian’ superannuation fund the following conditions must all be met:
- The fund was established in Australia, or at least one of its assets is located in Australia.
- The central management and control of the fund is ordinarily in Australia.
- The fund meets the active member test.
- The fund was established in Australia, or at least one of its assets is located in Australia
This rule is fairly self-explanatory and your SMSF will likely pass this test.
- The central management and control of the fund is ordinarily in Australia
This condition is more complex. Firstly, it is important to understand what activities are considered to demonstrate ‘central management and control’ in order to determine if a SMSF is managed from Australia. The ATO considers the following as being activities demonstrating ‘central management and control’ of a fund:
- Formulating, reviewing and updating of the fund’s investment strategy
- Reviewing the performance of the fund’s investments
- Formulating a strategy for the prudential management of any reserves;
- Resolving how assets are to be used for member benefits.
Activities which do not demonstrate central management and control would include accepting regular contributions or the purchase of a new fund investment.
Therefore if a SMSF trustee was to live overseas and maintain management of the fund such that their activities constitute ‘central management and control’, they potentially may fail this condition.
What about the 2 year rule?
There is a 2 year rule which may apply to some members moving overseas temporarily but it is important to understand how the 2 year rule operates. The ATO has outlined that a fund will meet the ‘central management and control’ test even if central management and control is temporarily outside Australia for up to two years. However this usually only applies for circumstances where members know they are going to be overseas for a temporary period.
In your case given you plan to move indefinitely it is unlikely that you could argue that central management and control is temporarily outside Australia.
But I don’t want to wind up my SMSF, what can I do?
It is probable that if you were to continue to manage your SMSF whilst overseas you may not be able to meet the central management and control test. However it may be possible to overcome this issue where you transfer your trusteeship to someone else for the period you are living overseas. While you would remain to be a member of your fund, you would need to resign as an individual trustee or director of the trustee company (depending on what your trustee structure is) and appoint someone else as an individual trustee or director of the trustee company in your place. In order to meet the basic definition of an SMSF (members must be a trustee rule) the new trustee must be a person who holds an enduring power of attorney in respect of the member. There are important steps that need to be made correctly so as to pursue this type of strategy and we recommend that trustees contact us should they wish to move overseas either temporarily or permanently.
- The fund meets the active member test
The third condition focuses on who are active members. An active member is a member who has paid contributions into their SMSF or contributions are made to the SMSF on their behalf. To satisfy this test, basically any one of the following must be met:
- All members are Australian residents; or
- If one or more member are non-residents, the fund has no active members; or
- At least 50% of fund assets are attributable to active members who are Australian residents.
Therefore the proportionate value of superannuation benefits would need to be carefully monitored where non-residents make contributions to a super fund. Furthermore it is important to remember that contributions to a super fund for the active member test include other deposits to a member account, including rollovers and government co-contributions. Again we recommend that any SMSF member considering moving temporarily or permanently overseas contact us to ensure all superannuation requirements will be met.