With many people now relocating overseas for work, family or retirement, it is important to consider how this move may affect your Self Managed Superannuation Fund.
FOR AN SMSF TO MAINTAIN ITS COMPLYING STATUS AND THE CONCESSIONAL TAX RATE, IT MUST SATISFY THE FOLLOWING THREE TESTS AT ALL TIMES:
The fund is established in Australia or an asset of the fund is situated in Australia
Central management & control is in Australia
The active member's test
Whilst the first test is relatively easy to meet, the remaining two can be problematic for those people who are relocating overseas either permanently or temporarily.
CENTRAL MANAGEMENT AND CONTROL
For central management and control to be in Australia, a majority of the trustees/directors must reside in Australia. Whilst the rules allow trustees to leave temporarily for a period of up to two years, the intent of departure is also an important factor. If the trustee embarks on an extended holiday or signs a one year contract to work overseas, with the intent of returning to Australia after this time, then the test is satisfied. If, however, they signed a three year contract then they will fail this test as soon as they leave Australia.
This is the hardest test to manage when members move abroad.
THE ACTIVE MEMBER'S TEST
An active member is any member who makes a contribution or rollover into the SMSF during the year. For the fund to pass the active member's test, there must be no active overseas members during the year, or they must be in a minority. If an overseas member makes contributions, then the fund must have at least 50% of the balance held by 'resident active members'. If this cannot be achieved, then the overseas members should consider making their contributions to an industry or retail fund and then rolling over their balance once they have returned to Australia.
Meeting these tests when you move abroad can be difficult and complex. Failing to meet the three tests above will result in the SMSF being classified as non-complying and taxed at the highest marginal tax rate.Â
Please contact KK Partners Group to discuss your situation if you think this may affect you and your SMSF.