There is often some confusion around Self-Managed Super Funds (SMSFs) and living abroad and the tax implications that may come from this. In order for a Self Managed Super Fund to maintain its’ complying status and receive concessional tax treatment, the Self-Managed Super Fund must be a resident regulated fund at all times of the financial year. To be an Australian Superannuation Fund, it must be able to meet three tests: establishment/asset test, active member test and central management/control test.
1. Establishment test: The Self-Managed Super Fund must be established in Australia or at least have an asset in Australia. This requirement is easy to meet if the initial contribution is received in the SMSF’s bank account in Australia.
2. Central management and control test: The managers and controllers of the Self-Managed Super Fund must ordinarily be in Australia. These are the people who make the high-level decisions for the SMSF in Australia. As long as the person overseas is only on a temporary period of absence, it will satisfy the test. For example, it is perfectly fine to take that holiday you have been planning as long as there is intention to return. Otherwise this is classified as a permanent absence. If the person is going away for an indefinite period of time, for example, going to London and gives no indication of returning, then the SMSF will fail the test.
3. Active member test: An active member is someone who contributes to their SMSF or who has another person (eg. an employer) making contributions on their behalf. No contributions or roll-overs should be made to the SMSF while its members are overseas. If contributions are made while members are overseas, they should be made to a large commercial super fund and then rolled over once they are Australian residents again.
It’s important to note that once a SMSF fails the residency test, it then becomes a non-complying superannuation fund and the fund is taxed at a flat rate of 45%. This will continue on for each year the SMSF is classified as a non-complying SMSF. When the super fund becomes a complying SMSF again (if the SMSF returns to Australia for the full financial year) the concessional rate will apply.
It is extremely important you seek advice about your Self-Managed Super Fund before going overseas. If you are planning an overseas trip, or you would simply like to speak to a qualified accountant or financial planner with regard to your SMSF – please ensure that you get in touch with us here at Fortis Accounting Partners. You can reach us on 02 9267 0108, or via info@exemplary-financial.flywheelsites.com.
