Atlas Wealth Management managing director Brett Evans, who specialises in advice for expats, said out of all the residency conditions for SMSFs, the central management and control requirement is the most challenging for expats as it is often difficult for SMSF members to fully relinquish control.
While on paper they may have a family member, an accountant or adviser as a power of attorney, they continue to try and control their SMSF from afar, he said.
“Often people will say that their accountant has got a power of attorney or that their financial adviser is doing all the investments for them, but that’s still not enough control. It has to be overarching control of the account,” he explained.
“We saw a case where the sister, who was appointed as a director of a corporate trustee and held a power of attorney on behalf of her brother, had no idea about super, investing and everything else that goes along with it. If the ATO had done a spot audit and questioned her about her ability to manage the fund she would have failed in a heartbeat.”
Mr Evans said a lot of expats with SMSFs are also under the assumption that it will be very difficult for the regulator to catch them out.
“The most commonly used phrase is “how is the ATO going to know?”, but the regulator now has plenty of tools at its disposal including data-matching technology [to monitor this].
“If the ATO suspects something and they can see that its pretty easy money for them to get in terms of fines and tax compliance and that sort of thing, it’s amazing how much effort the regulator will go to in order to chase that money.”
If the client doesn’t have any physical assets such as property, collectibles or gold, then Mr Evans said in some cases it may be best to move the client to a retail super fund with flexible investment options.
“If the client just has direct equities and managed funds and still wants to have some sort of control over the investment making decisions, then it’s a pretty simple exercise just to wind up the SMSF and roll back to a retail super fund and build direct equity and managed fund portfolio inside the retail super fund,” he said.
“They can still have control over it but we don’t have the issues of active members and central management and control.”
It is funny, because most of the case law is about the ATO seeking to establish central management and control is in Australia for companies. With planning, their victories can be used against them in the case of SMSFs, but careful planning is essential.
This is another area of law that needs changing and bringing into the 21st century. Why is it always so hard to update legislation for the modern world. The ATO understands that it needs to update its technology (groans from tax agents) but Tax laws can’t keep up
A good article and I understand the points made by Mr Evans but I have to ask? how is transferring the funds into a retail super fund maintain control? The member has no say, whatsoever, in the types of investments made by the retail fund and then there is the never ending issue of fees.
Actually George, there are many APRA regulated funds that allow members to select specific asset selection, particularly with listed shares, fixed interest securities, hybrids etc. I take your point on fees however a SMSF is not necessarily the cheapest option even for a reasonable fund balance.
They can also think about moving their SMSF to a professional trustee under a Small APRA fund while overseas which would help if they have some assets not in a retail fund.
Brett is right on the mark about the sister not knowing what she is responsible for. I see many people signing the Trustee Declaration without even signing it. We give prospect trustees SMSF guides, free SMSF education modules and links to the ATO’s over 30 short SMSF videos and website giving different education means to suit all people. No one should take on duties like this without understanding them especially if they are directors of businesses as messing up an SMSF could lead to disqualification as a director affecting their own business.