So you followed all the advice about putting money away for your retirement. You consulted your accountant and decided to setup a Self Managed Super Fund (SMSF). Then you moved overseas for a few years. Make sure you take good advice. If your SMSF becomes non-complying it could be a costly mistake.
Compliance Tests for a Self Managed Superannuation Fund
If you have set up your own self managed super fund (SMSF), with possibly your husband or wife, and you move overseas for an extended period you run the risk that the superannuation fund will fail the residency test and become non compliant. Non compliant SMSF’s can be taxed at the highest marginal tax rate on the market value of the fund.
In order for a SMSF to remain a “complying” superannuation fund it will need to meet three tests at all times:
- Be established in Australia or hold assets in Australia
- Central management and control ordinarily in Australia
- Satisfy the “active member” test
Test 1 : Be Established or Hold Assets in Australia
If a SMSF is established in Australia it will always satisfy this test.
Test 2 : Central Management and Control of the SMSF Ordinarily in Australia
This test looks at where the strategic, investment related, and main decisions concerning the Self Managed Super Fund are ordinarily made. It includes :
- Developing the investment strategy for the fund
- Reviewing the performance and updating the investment strategy of the fund
Day to day activities of the fund do not constitute central management and control because they are not of a strategic or high level nature. In most cases for Self Managed Super Funds, the trustees of the fund are the same as the members of the fund. If the trustee / member moves overseas for an extended period, then the central management and control of the fund would no longer ordinarily be in Australia, and this test will fail.
Test 3 : Active Member Test
If the fund has any non-resident (for Australian tax purposes) members, they cannot be an active member of the fund if their balance makes up more than half of the total balance of all active members.
To satisfy this test, one of the following must apply :
- All members are Australian tax residents
- If a member of the fund is a non-resident and an active member, their balance must be less than 50% of the total value of the SMSF.
Consequences of Having A Non-Compliant Self Managed Super Fund
If the fund stops being a complying fund because it does not satisfy the tests noted above, an amount equal to the market value of the fund’s total assets (less any contributions the fund has received) may be included in the fund’s assessable income. This amount will be taxed at the top marginal rate.
For every year the fund remains non complying its assessable income is taxed at the highest marginal rate.
Options For Australian Expats
Options for Australian expatriates in this situation include winding up the Self Managed Super Fund and rolling the money into either a public superannuation fund, or converting the fund to an APRA fund.
If your SMSF has invested in property, the former solutions won’t be particularly attractive. There are some options to continue the Self Managed Super Fund (and satisfy Test 2) by appointing your enduring Power of Attorney to be Trustee of the SMSF. Given the complexities of superannuation legislation and its ever changing nature, it is recommended that you consult experts in this field. If you would like to be referred to someone with experience in this field, please complete the contact form below.
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Disclaimer : The information contained on this website is intended only as general commentary and does not purport to be comprehensive. No warranty is provided as to the accuracy. It should not be regarded as tax, financial, or legal advice. Remember, the value of an investment can go down as well as up, and you should seek professional advice that considers your personal situation and country of residence before taking action. The Australian Expat Investor may receive a referral commissions for some services and products mentioned on this website.