Recent case law has highlighted how easy your Self-Managed Super Fund (SMSF) can breach legislation if you go overseas. All SMSFs need to qualify as Australian Superannuation Funds to be compliant and receive concessional tax treatment.
To ensure your SMSF is compliant, it needs to pass all 3 of the following tests:
- Has been established in Australia or has an asset in Australia;
- Has its central management and control in Australia: that is the trustees, or directors of the trustee, that principally make decisions about an SMSF must reside in Australia
- Complies with the active members rule.
In the case of CBNP Superannuation Fund v Commissioner of Taxation, the sole member of the fund moved overseas whilst maintaining the Australian SMSF. During an ATO audit 4 years later, it was revealed that as the sole member was no longer residing in Australia, the SMSF was deemed to be non-compliant; failing test 2 above. The result was extensive fines and increased tax for the 4 years since the fund’s member relocated.
While this case was extreme and involved a taxpayer who permanently left the country; who themselves became a non-resident of tax purposes, the same breach of test 2 can occur from spending a mere 2 years out of Australia on work or holidays.
There are several strategies to ensure your SMSF remains compliant if your circumstances change and you find yourself out of Australia for an extended period of time. If you would like more information on SMSF compliance and the residency rules, please contact our office.