SMSF instalment warrants | SMSF Residency Rules | Overseas departures | SMSF Members Overseas | SMSF Power of Attorney | POA | SMSF POA

Trustees need to ensure their SMSF is an Australian SMSF. If a SMSF breaches the residency rules it will not be taxed at the concessional 15% but at the marginal tax rate of 46.5%. So it’s important to ensure the SMSF is a resident Australian SMSF.

Trustees can set up and manage a self managed superannuation fund from overseas if they are outside Australia on a temporary basis. A temporary absence from Australia would generally mean a Trustee would be overseas for 2 years maximum.

What is the test for Residency?

The are 3 criteria that a SMSF should meet. These are:

1. The SMSF was established in Australia, or at least one of the SMSF's assets is located in Australia; and
2. The central management and control of the SMSF is ordinarily in Australia; and
3. At least 50% of the SMSF Membership must be in Australia, measured by market value (the Active Member test).

These 3 criteria are now discussed below.

Criteria 1: Fund establishment in Australia
A SMSF is established in Australia when the initial contribution to start the SMSF is paid to and accepted by the Trustees in Australia. It is not necessary for the Trust Deed to be signed and executed in Australia.

If a SMSF was not established in Australia, it will satisfy the test if at least one asset of the SMSF is situated in Australia.

Criteria 2: Central management and control
The ATO says the central management and control of a SMSF involves a focus on high level decision making processes and activities of the SMSF. The SMSF will be resident where the central management and control takes place.

Criteria 3: The Active Member test
The third test that must be satisfied is the ‘active member’ test. This is satisfied when at least 50% of the market value or Fund value are held by active members who are Australian residents.

More information
For more information on super fund residency rules, see the ATO guidance on SMSF residency by clicking here.

The ‘2 year rule’
The central management and control can be taken as ordinarily in Australia even if it is temporarily outside Australia for periods of not more than 2 years. Unfortunately, the 2 year rule is sometimes misunderstood: it is not an exception available to all Trustees irrespective of the facts and intentions surrounding the absence.
If an absence is permanent then the 2 year rule does not apply. Even an absence of less than 2 years could be ‘permanent’ and the central management and control could therefore be outside Australia (eg, if Trustees departed, intending to be away indefinitely, but returned after only 18 months due to ill health).
Conversely, in some situations a departure greater than 2 years will be ok (eg, if Trustees depart with an intention to be away for a defined period of less than 2 years, but due to unforeseen circumstances must remain overseas in order to fulfill the specific purpose for which they departed, then the central management and control could still ordinarily be in Australia).
If 50% of the Trustees are in Australia and 50% overseas, the central management and control is in Australia if both equally participate in exercising the central management and control, however the ATO considers this would rarely be the case.

Power of Attorney

When Trustees are overseas on a permenent basis, they can still be part of a SMSF. The main criteria is that a Power of Attorney needs to be done for the for the management and control of the SMSF. While overseas, Members can't contribute to the SMSF. The ATO gave a ruling on this (Self Managed Superannuation Funds Ruling SMSFR 2010/2) setting out all the requirements for a POA.

Conclusion
Moving overseas will not necessarily mean the SMSF needs to be wound up. With careful planning, the SMSF can remain an Australian SMSF. Trustees should seek professional advice before a Trustee goes overseas permanently or temporarily for two years or more. Feel free to contact us for your queries on SMSF residency.