For those who run a self-managed super fund and love to travel, you need to be aware of the consequences of maintaining compliance if you are out of the country for longer than you should be. As a trustee you also need to be aware of any tax concessions that may be affected if you relocate overseas for an extended period of time.
Should your SMSF become non-compliant, it will lose its concessional tax rates and be taxed at the highest marginal tax rate. The following three considerations must be met to ensure your SMSF retains its compliance status:
- the fund must be deemed to be an Australian fund ie established in Australia
- central management and control is ordinarily in Australia
- the active member test must be fulfilled
Where high level decisions, such as formulating an investment strategy, are made outside of Australia, the trustee needs to demonstrate that central management and control of the SMSF is in Australia and only temporarily being conducted from overseas. Temporary is deemed to be up to two years.
If the absence of the trustee from Australia is not temporary, then it could be assumed that the central management and control is not ordinarily in Australia. If this is the case then the following options should be considered:
- appoint a legal personal representative with an enduring power of attorney to act on your behalf
- wind up the fund and roll any benefits into a retail or industry fund
- convert the SMSF into a small APRA fund
Administration of your fund continues regardless of where you are and whilst you may be overseas, you could still be required to sign financial statements. You will need to ensure that you have strategies in place for your Fund to be properly administered in your absence.
Where your SMSF is deemed to not meet the ordinarily Australian requirement, and is therefore non-compliant, there is the potential for significant tax consequences.
To satisfy the active member test, a member is deemed active if they financially contribute to the Fund. To maintain compliance of your SMSF, you need to ensure that no contributions are made from any non-resident members. The active member test alternatively requires that at least 50% of all assets are attributable to active members who are Australian residents. There is no point in appointing a legal representative if you do not meet the active member test.
The rules are complex and so if you are planning on travelling or relocating overseas, please call us so that we can help you to maintain the compliance of your SMSF.