Michael Hallinan, special counsel for SUPERCentral said to ensure that any overseas travel doesn’t impact the status of the fund, Hallinan said trustee/s should start planning for the management of their SMSF before leaving Australia.
He said the Australian residency requirements for an SMSF necessitate that the fund be established in Australia, and the Central Management Control (CMC) to be ordinarily situated in Australia and to pass the active members test.
“The intention of the trustee/s at the time of the departure is an important factor. That is, at the time of leaving Australia, was the intent to be away temporarily for a period of not more than two years? If yes, then they may pass the CMC test, if no, they fail even if they do come back within two years,” he said.
“And if the SMSF is found to be non-complying, its taxable income will be taxed at the highest marginal tax rate for the whole of the financial year.”
Regarding the active members’ test, Hallinan said there must be no or only a minority of overseas members making contributions to the SMSF during the financial year.
It’s not just CMC or active members’ test that needs careful consideration if the trustee of an SMSF is heading overseas – enduring powers of attorney are also a concern.
“If any documentation such as EPOAs have to be signed overseas, stringent rules apply to their execution in order for them to be valid in Australia. It may be very difficult or even impracticable to find an eligible witness,” he said.
“Additionally, documents such as EPOAs will require that the original document be sent back in hard copy by post to someone in Australia to be signed by someone such as the appointed attorney and there is the risk of the document being lost during international transit.”
Furthermore, he said, it is also easier if clients are in the country at the time the strategy is implemented in case documents which are only in the trustee/s’ possession are needed by the adviser/lawyer.
“If the trustees know they won’t satisfy the CMC requirements but want to maintain their SMSF each departing member will need to execute an enduring power of attorney to appoint one or more attorneys and effect the necessary change of trustees/directors,” Hallinan said.
“It is also recommended to have EPOA in case anything happens to any of the members/trustees while overseas. Plus, check the trust deed and constitution of the corporate trustee (if applicable) to confirm the appointment of the appointed attorney is permitted.”
He added that if the SMSF has a limited recourse borrowing arrangement in place, it’s important to review terms and conditions of the loan to check the change of directors of the corporate trustee will not cause any issues with the bank and whether their prior consent is required.
“Also, if the SMSF has individual trustees and owns real estate, it will need to be transferred into the name of the new trustees while the members are overseas,” he said.
“This involves verification of identity checks and execution of a transfer form as well as production of the certificate of title and documentary evidence in relation to the acquisition of the property by the trustees.
“As this transfer would need to be undertaken again once the trustees are back acting as trustees in Australia, it may be more cost effective to appoint a special purpose company as trustee before departure so only a change in directors is required when the members return. Any real estate would need to be transferred in the name of the new corporate trustee.”
Hallinan continued that as with any major plans, there are other issues that must be considered if members are planning on going overseas for an extended period.
“You have to decide if the members are handing over control and management of the SMSF to someone else and if so, do they have someone they can trust? Will that person accept the role? Are they eligible?” he said.
“As well, it’s important to understand that the appointed attorney is not acting as an agent of the member, they are appointed in their own right, effectively taking on the responsibilities, duties and liabilities of a trustee/director of a corporate trustee and can be found personally liable for breaches committed while in that office.”
He said that if a trustee knows they will be out of the country for a length of time they will generally need to resign from the office of trustee.
“It should also be noted that members may not be able to make contributions during their absence,” he said.
“Other things to think about include estate planning and ensuring that those strategies and any binding death benefit nominations are in order. It is also worthwhile considering setting up an industry or retail fund to contribute while overseas and then rollover amount into SMSF once back to Australia, remembering that rollovers count as contributions for the active member test.”
