When You Leave Australia – Your Self Managed Superfund Should Stay!

Self managed superannuation funds (‘SMSFs’), are a type of Australian complying superannuation fund which are common investment vehicles held by many Australian expatriates.

While SMSFs provide many benefits, it should be noted that there are specific compliance requirements which must be abided by. If these compliance requirements are breached, a SMSF may lose its complying fund status and face potentially serious tax consequences.

There are many regulatory requirements pertaining to SMSFs. One such requirement is that the fund must be a ‘resident regulated superannuation fund’. Two criteria that must be satisfied are as follows:

• the central management and control of the SMSF must be in Australia (subject to particular carve-outs) (‘Central Management and Control Test’); and
• where a superannuation fund has one or more active members, the entitlements of resident active members must be at least 50% of the total accumulated entitlements of all active members (‘the Active Member test’).

Central Management and Control Test

Management and control will normally lie with the trustee(s) of the relevant SMSF.

Where the trustee of a SMSF is a taxpayer in his/her personal capacity, the central management and control of the SMSF is usually considered to be where the taxpayer is resident. In the case where a SMSF has a corporate trustee, the central management and control of the SMSF is likely to be where the majority of the directors of the corporate trustee are resident.

For example, if the trustees of the Smith Superannuation Fund are John and Jane Smith in their personal capacity and John and Jane have both moved to Hong Kong and ceased Australian tax residency, the Smith Superannuation Fund may ceased being managed and controlled in Australia. If the Smith Superannuation Fund has a corporate trustee and John and Jane are the directors, the Smith Superannuation Fund may also have ceased being managed and controlled in Australia.

However, the Management and Control Test may still be satisfied if the expatriate individual trustee(s) or trustee company directors remain overseas for less than 2 years.

Active Member Test

In general terms, a SMSF has an ‘active member’ for an income year if a member or his/her employer contributes to the SMSF for the member’s benefit.

For example, if John and Jane are the only members of the Smith Superannuation Fund and both John and Jane’s employers continued contributing into the fund for their benefit they will both be active members of the fund. If these contributions continue after they ceased Australian residency, the SMSF will have breached the Active Member test as the entitlements of resident active members would be less than 50%.

Although we have provided a brief outline of the two of the most common problems for Australian expatriates and their SMSFs, there are other compliance issues which may affect the complying status of a SMSF. If you are an Australian expatriate with a SMSF, it may be prudent to seek a review of your SMSF’s complying status.

This information has been prepared in good faith, is in the nature of general comment only, and neither purports, nor is intended, to be advice on any particular matter. You should not act or rely upon any matter or information contained in or implied without taking appropriate professional advice which relates specifically to your particular circumstances. The authors and consultants expressly disclaim all and any liability to any person (whether a reader or not) who acts or fails to act as a consequence of reliance upon the whole or any part of this information.