CFS flags critical questions for SMSF clients moving abroad

“When it comes to super, there are different rules for what applies to former temporary residents or people that have never been a resident,” Ms Fox explained in a recent CFS FirstTech podcast.

“Under the super laws, a current or former temporary resident may be subject to modifications about the way their super applies to them which includes things like fewer conditions of release being available to them,” she explained.

“In some situations, their super benefit might have to be transferred to the ATO, and the super benefits might be subject to different tax rates when they withdraw it and there’s sometimes limitations on some contributions, and tax concessions that are available to these temporary or former temporary residents.”

Although there are a number of rules that apply to contributing and accessing super funds if an Australian resident moves overseas temporarily, if they have an SMSF there are many more things to consider, she said.

“In terms of self-managed super funds, we do need to be very careful because there’s a couple of rules.

“Overall, a super fund to be a complying superannuation fund needs to be what they call an Australian superannuation fund.

“Just think about it as a resident superannuation fund.”

Ms Fox said there are two very important tests to ensure a fund’s status.

“The first one is the central management and control test and the second is the active member test,” she said.

“If people are going overseas, then for a fund to be a complying superannuation fund, the central management control needs to be ordinarily located in Australia, which means it needs to have been set up and managed in Australia.

Central control management is where the key strategic decisions are made, not just the day-to-day administration, she said.

“It’s the key strategic decisions around the fund, what it’s investing into, and how it’s selling assets to pay benefits.”

This implies that a client can go away temporarily and come back, because as long as the absence is temporary, the centromeric control would normally be in Australia.

“The government did come out and give us some rules to say you’ve got a safe harbour of up to two years that you can go away and exercise central mental control during that period,” Ms Fox said.

“In the last budget of the previous government, they did suggest extending that safe harbour period from two to five years and as far as I’m aware that is still on the agenda but we have not seen any legislation.

“The active member test looks at the proportion of benefits that belong to active Australian resident members, and measures that as a proportion of all members across the fund. Resident in this case is a tax resident.

“You need to be careful because an active member is someone that’s considered to be a contributor to the fund and that’s not only just making contributions but also includes rollovers, and it also can include someone that objectively has the intention to contribute to the fund.

“If you have all the members of the super fund go overseas, then you’ve got no Australian resident members. Now, as long as they don’t make a contribution to the fund, then you’ve got no active members, so you pass the test.

“But if they make a $1 contribution, then that can actually result in them failing the active member test. And to be an Australian super fund, you have to pass all the relevant tests involved.”

If a fund fails the active member test, and it’s no longer an Australian super fund, the assets of the funds are subject to tax of 45 per cent.

“If your clients have a self-managed fund, they’re talking about going overseas, you need to address that as an issue,” Ms Fox said.

“It may involve shutting the fund down and rolling people out. It may involve putting in place other people to act as directors or want to contribute.”