A Self Managed Superannuation Fund (SMSF) provides greater flexibility over your investments and certain tax concessions as a complying superannuation fund. However, many people do not realise that, in order to be a complying super fund and receive tax concessions, your SMSF needs to be a resident regulated super fund at all times during the income year. This means your fund needs to meet the definition of an ‘Australian superannuation fund’ for tax purposes.
An SMSF is an Australian superannuation fund if it meets all three of these conditions:
1. your fund was established in Australia, or at least one of the fund’s assets is located in Australia
2. the central management and control of your fund is ordinarily in Australia
3. your fund either has no active members or it has active members who are Australian residents and who hold at least 50% of:
o the total market value of your fund’s assets attributable to super interests, or
o the sum of the amounts that would be payable to active members if they decided to leave the fund.
The first two conditions are quite straight forward; whereas, the active member test is often misinterpreted. A member is not an active member if contributions have been made to the fund on their behalf and:
• they are not a resident of Australia
• they have ceased to be a contributor
• the contributions made on their behalf after they ceased to be an Australian resident were made for the time they were an Australian resident.
In turn, a member is an active member of your SMSF if:
• they are a contributor to the fund
• contributions to the fund have been made on their behalf.
If your SMSF stops being a complying fund because it does not satisfy the residency rules its assets (less certain contributions) and its income are taxed at the highest marginal tax rate (i.e. at 47% for 2014-15, 2015-16 and 2016-17 income years).
For example, a husband and a wife are members of their SMSF. The husband’s superannuation balance is $350,000 and his wife’s superannuation balance is $100,000. The wife moves overseas for work and becomes a non-resident for income tax purposes. She makes a contribution into the SMSF of $20,000 while working overseas. The husband did not make any contributions into the SMSF during the same financial year; hence, he is not an active member. The SMSF will fail the residency test as in spite of husband’s superannuation balance being more than 50% of the total balance, he is not an active resident member.
In summary, if you are planning on going overseas it is recommended to seek professional advice about maintaining the residency status of your SMSF. The Quinn Group can help you in this regard. Please contact one of our Financial Planners or Tax Accountants to obtain further information. You can contact us on 02 9223 9166 or fill out an online enquiry here.