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Australians are a well-travelled bunch, and it is certainly not uncommon for Australians to travel far and wide around the globe to live for a period of time to pursue their careers or raise families. In fact, according to the Australian Bureau of Statistics, in 2015-16, net overseas migration increased by 182,165 persons (3% more than in 2014-15) and at 30 June 2016, 6.9 million Australians (28.5% of Australia’s estimated resident population) were born overseas. Apart from the opportunity to immerse oneself in a new culture, living and working abroad can be an effective means to grow wealth, particularly if living in a country with a low cost of living and low tax rates.
However, while living and working abroad can be an attractive option, there are a number of things to take into consideration beforehand. This includes SMSF compliance. Simply put, if you are an SMSF trustee who is thinking of relocating overseas for an extended period of time, the residency and compliance status of your SMSF, along with its ability to receive tax concessions, may be affected.
In order to be compliant (and therefore be eligible to receive tax concessions), an SMSF needs to be an Australian super fund at all times. If your fund does not satisfy the residency rules, it may become non-compliant meaning the assets and income of the fund will be taxed at the highest possible tax rate. It is also important to note that if a fund is issued with a non-complying notice, it will be unable to become a complying fund again.
What are the residency conditions for SMSFs?
There are three residency conditions that an SMSF must meet in order to be an Australian super fund.
1. The fund must be established in Australia (meaning the initial contribution made to establish the fund was paid and accepted in Australia) OR at least one of the fund’s assets must be located in Australia.
2. The central management and control of the fund is ordinarily in Australia, meaning the strategic decisions for the fund are made in Australia along with the fund’s high-level duties and activities. This does not include the day-to-day activities and operations of the fund. The fund will still meet this requirement if the central management and control is temporarily outside of Australia for up to two years however, if it is permanently outside Australia, it will not satisfy this condition.
3. The fund either has no active members, or the active members are Australian residents who hold at least 50% of the total market value of the fund’s assets attributable to super interests OR the sum of the amounts that would be payable to active members if they decided to leave the fund.
What can be done if members want to go overseas?
SMSF trustees are still able to go overseas for an extended period of time, without it impacting on their fund’s residency and compliance status. It just takes some time, thought and strategy to do so. Some options to consider if you are planning a long-term overseas trip include:
Become ‘in-active’
If a member is planning on moving abroad, they can become an ‘in-active’ member, which means they cannot make contributions while overseas. Instead, they can do this outside their SMSF (e.g. through a retail or industry super fund) and once they return to Australia, they can then rollover the contributions to their SMSF.
Appoint a Power of Attorney
An alternative option is to appoint a Power of Attorney who is responsible for the management and control of the SMSF while trustees are abroad.
Become a Small APRA Fund (SAF)
An SAF is a self-managed super fund with a professional trustee who looks after all compliance obligations for the fund, which is an alternative option to consider if SMSF trustees are planning on moving abroad for a period of time.
If you are thinking of travelling or living abroad for an extended period of time, it is recommended you seek professional advice before doing so to ensure your fund stays compliance and you avoid tax implications. If you would like to discuss this in more detail, please don’t hesitate to contact us on 07 3391 5055 or email us at advice@mgdwealth.com.au.
Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.