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Case study: breaching SMSF residency rules

15 October 2014 — 1 minute read

The ATO provides insight into how it deals with SMSFs that breach the residency rules, with a case study showing how voluntary disclosure helped prevent two trustees from losing their tax concessions.

Bob and Betty were trustees and members of a self-managed superannuation fund (SMSF).

Bob worked outside Australia for two years and eight months. As a result, the SMSF failed to meet the residency rules and no longer met the definition of an Australian superannuation fund (under section 295-95(2) of the Income Tax Assessment Act 1997). Because the SMSF is not an Australian superannuation fund, it cannot be a complying superannuation fund (under subsection 42A(1) of the Superannuation Industry (Supervision) Act 1992).

Bob and Betty voluntarily told us about their SMSF’s situation. We started an investigation as a result of their voluntary disclosure.


Usually, an SMSF would lose its complying status if it stopped being an Australian superannuation fund. As a result:

• its assessable income would be taxed at a rate of 45% (or 47% for 2014/2015, 2015/2016 and 2016/2017 income years)

• it would lose almost half its assets in a one-off additional tax bill in the year that it became non-complying.

However, in this case we did not make the SMSF non-complying because of a number of mitigating factors:

• Bob and Betty voluntarily disclosed the breach to us before we took action.

• Bob was terminally ill.

• Bob and Betty were divorced and their super benefits were subject to a Family Court order.

We allowed the SMSF to retain its complying status and receive concessional tax treatment until it could be wound up. Bob and Betty were required to roll over all the benefits and wind up the SMSF.

How this may affect you

You need to be aware of residency rules and apply them at all times. If you realise that your client’s SMSF has breached the residency rules (or any other super or tax law), contact us immediately to discuss your options.

In this case, by voluntarily disclosing their SMSF’s breach of super law, Bob and Betty avoided losing their SMSF’s tax concessions and almost half its assets.

This column was originally published by the ATO. 


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