Beware residency rules if moving overseas
SMSF trustees are often unaware that if they move overseas for an extended period of time, their SMSF may fall foul of the ATO’s residency rules and they may face a heavy tax bill.
In order to satisfy the residency rules, SMSFs must meet three conditions:
- It 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.
- It either has no active members or it has active members who are Australian residents and who hold at least 50 per cent of:
- the total market value of the fund’s assets attributable to super assets, or
- the amounts that would be payable to active members if they leave the fund.
Generally speaking, the first condition is readily satisfied, but the other two can cause problems if members move overseas for a period of time, usually defined as over two years.
If these conditions aren’t met, then the fund can lose its complying status, which has significant tax implications. They include:
- taxing assessable income of the SMSF at 47 per cent (or 45 per cent for income years before 2014/15), and
- a one-off additional tax bill in the year that it becomes non-complying that would result in the fund losing almost half its assets.
So what are the options for SMSF trustees and members who are considering moving overseas temporarily or taking an extended trip?
If trustees know they will be away for more than two years, or even if they are planning a shorter trip but it may end up being permanent, they should take steps to protect their superannuation before heading off.
This could involve transferring their benefits to a public offer fund and winding up their SMSF.
Alternatively, if they want to keep their SMSF running, but do not currently have at least 50 per cent of trustees living in Australia to manage and control the fund, they should appoint additional resident trustees/members to the SMSF, for instance adult children.
They could also appoint a resident enduring power of attorney to act as SMSF trustee on their behalf while they are away. Or, if they have a corporate trustee, they could appoint an alternate director to act as trustee director in their absence.
The main difference between an alternate director and an enduring power of attorney is that the power of attorney can continue acting on behalf of the member in the event of their incapacity. However, the role of alternate director will cease if the trustee is incapacitated, that is, the role of director ceases.
They should also take steps to ensure the ‘active member’ condition is satisfied. Active members are those who are making contributions or rollovers to the SMSF. Therefore, even if the central management and control test is met, if an overseas SMSF member contributes to the fund, then the SMSF will become non-complying if the overseas members combined hold more than 50 per cent of the SMSF’s assets.
Contributions or rollovers for these overseas members can instead be made to a local public offer, retail or industry fund while overseas and then they can choose to transfer these benefits into their SMSF when they return to Australia.
In most cases, the best approach is for all members, local and overseas, to avoid making contributions or benefit rollovers to the fund while a fund member is overseas for an extended period.
While these steps are relatively straightforward, they need to be put in place before moving overseas. Therefore, SMSF trustees and members should ensure they talk with their advisers before undertaking any overseas moves.
Andrew Yee is director of superannuation and SMSF specialist at HLB Mann Judd Sydney.
By Andrew Yee
12 Apr 2018
www.smsmagazine.com.au
Hot Issues
- FBT Reminder – Odometer Reading
- ATO’s debts on hold campaign prompts new IGTO guidance
- A comprehensive collection of small business benchmarks
- The 2025 Financial Year tax & super changes you need to know!
- Underperforming employees: When can you terminate?
- A comprehensive list of guides to industry specific tax deductions.
- ‘Renewed concerns’ about economy sees consumer sentiment dip: Westpac
- Oldest Buildings in the World.
- Small businesses may ‘collapse under strain of payday super’, IPA warns
- ATO’s hands tied with scrapping on-hold debts, expert says
- What Drives Your Business Growth and Profits?
- Australian Taxation Office (ATO) shifting to firmer debt collection activity
- Why employee v contractor comes down to fine print
- Sharing economy reporting regime for platform operators
- Countries producing the most solar power by gigawatt hours
- Illegal access nets $637 million
- Accessing superannuation benefits.
- Does your business have a company Power of Attorney?
- Labor tweaks stage 3 tax cuts to make room for ‘middle Australia’
- GrantConnect
- 2 in 3 SMEs benefit from instant asset write-off, survey reveals
- Updated guidance on R&D claims
- Do you know how to recover debts?
- Wheat Production by Country
- Types of small business benchmarks
- What is a Commercial Lease?
- ATO warns advisers against suspect R&D tax claims
- The year of workplace law upheaval
- Vimeo test
Article archive
- January - March 2024
- October - December 2023
- July - September 2023
- April - June 2023
- January - March 2023
- October - December 2022
- July - September 2022
- April - June 2022
- January - March 2022
- October - December 2021
- July - September 2021
- April - June 2021
- January - March 2021
- October - December 2020
- July - September 2020
- April - June 2020
- January - March 2020
- October - December 2019
- July - September 2019
- April - June 2019
- January - March 2019
- October - December 2018
- July - September 2018
- April - June 2018
- January - March 2018
- October - December 2017
- July - September 2017
- April - June 2017
- January - March 2017
- October - December 2016
- July - September 2016
- April - June 2016
- January - March 2016
- October - December 2015
- July - September 2015
- April - June 2015
- January - March 2015
- October - December 2014
April - June 2018 archive
- Touch Payroll (STP)
- ‘Calm before the storm’: Government proposes 12-month SG amnesty
- Government intensifies cash payments crackdown - Kelly O'Dwyer
- Passive investment companies tax rate still 30%
- Cryptocurrency audits tipped to increase this EOFY
- Australia by numbers – Update
- $2.4m lost to tax scams, ACCC reports
- No GST on digital currency
- Federal Budget 2018 - Overview
- Your Budget
- 4 components of our 2018 Federal Budget
- Resources to help understand and implement Single Touch Payroll (STP)
- New rules capture SMSFs trading big with cryptocurrency
- New passive income test for lower corporate tax rate
- Tools to help you manage your financial position are available on our site.
- ‘A simple mistake can attract our attention’: ATO reminder about FBT slips-ups
- Australia by numbers – Update
- Beware residency rules if moving overseas
- Meaningful tax reform in high demand
- Working holidaymakers and tax returns
- Single Touch Payroll – 1 April 2018 Action
- Property investors on notice after ATO spots false claims
- ATO issues update on cryptocurrency compliance traps
- Australia's vital statistics
- Accountants spy elder abuse spike as mortgage stress sets in
- Tax office releases fresh guidance on SMSFs
- Labor's tax plans could favour the rich, analysis shows
- FBT Reminder – Odometer Reading
What our clients say about us