SMSF Members - Residency and Other Issues
Self Managed Superannuation Funds (SMSF's) are now a very common aspect of the Australian superannuation landscape - these are funds with four or less members, who want additional flexibility over the investment of their retirement funds. They may also be cost effective once a certain levels of funds are involved – there is some argument over the precise amount, but $250,000 is an indication. The members of the fund are required to be trustees of the fund or directors of a corporate trustee of the fund.
Income tax concessions available to these superannuation funds are a direct function of the fund's ability to comply with prudential standards under Australian superannuation law – and this is also the case with SMSF’s. Non compliance with these standards can lead to heavy penalties - including the application of the top marginal tax rate and trustees/members must understand them thoroughly.
The ATO regularly include the residency status of SMSF's in their compliance programmes, and for a fund to be considered a complying fund which is eligible for tax concessions, it must remain a resident regulated superannuation fund for the entire tax year. In order to fulfil the residency requirements, the fund must:
- either have been established in Australia, or have any assets situated in Australia at the relevant time;
- have central management and control in Australia, or the fund trustees must satisfy the temporary absence rule;
- have at least one active member (an Australian resident who contributes to the fund or who has contributions made on their behalf), and
- the percentage of accumulated entitlements of resident active members is at least 50% of the total accumulated entitlements of all members. If a fund is without an active member, then only the first two requirements must be satisfied.
The ATO have indicated elsewhere that they have little discretion available in enforcing these requirements, so it is absolutely essential that trustee/members of SMSF funds seek professional advice prior to moving overseas unless it is for a relatively short period of time.
One approach to addressing this issue is to delegate "central management and control of your fund" via a power of attorney to a person(s) who remains in Australia -others include dissolving the fund and rolling it over to a public offer or retail fund, or setting up a small APRA fund. You must seek professional advice in this regard - the costs of not addressing this issue can be very substantial.