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Are you allowed to take your SMSF overseas?

Posted by Northadvisory on September 7, 2016

There is unprecedented growth in the SMSF sector and the question I sometimes get is whether an existing SMSF can still operate if its trustees and members are overseas.

Trustees of SMSF’s must ensure that they don’t breach the residency rules. If these residency rules are breached the fund will be taxed at a marginal rate of 49%.

A SMSF will need to meet the following criteria to meet the residency rules;

1. The SMSF was established in Australia, or at least one of the SMSF’s assets must be located in Australia; and

2. The central management and control of the SMSF is ordinarily undertaken in Australia; and

3. At least 50% of the SMSF Membership must be in Australia, measured by market value (the Active Member test)

Rule 1 – The SMSF was established in Australia

An SMSF is established in Australia when the initial contribution to the SMSF is paid to and accepted by the Trustees in Australia. The Trust Deed does not have to be signed and executed in Australia. However, an SMSF established outside Australia will satisfy the test if at least one of the Fund’s assets is situated in Australia.

Rule 2 – The central management and control of the SMSF is ordinarily undertaken in Australia

According to the ATO, the central management and control involves the high-level decision-making processes and activities of the SMSF. The SMSF will be resident where the central management and control takes place.

Rule 3 – At least 50% of the SMSF Membership must be in Australia, measured by market value (the Active Member test)

The third test is the ‘active member’ test. This is satisfied when at least 50% of the market value or Fund value is held by active members who are Australian residents.

The central management and control of the fund can be taken as ordinarily in Australia even if it is temporarily outside Australia for periods of no more than two years. Unfortunately, the two-year rule is sometimes misunderstood. To clarify: it is not an exception available to all Trustees irrespective of the facts and intentions surrounding their absence.

If an absence is permanent, the two-year rule does not apply. Even an absence of less than two years could be ‘permanent’ and the central management and control could therefore be outside Australia (e.g. if a Trustee or Trustees departed with the intention of being away indefinitely but returned after only 18 months due to ill health).

Conversely, in certain situations, an absence of more than two years may be acceptable. This could be the case for example if a Trustee, leaving the country with the intention of being away for a defined period of less than two years in order to fulfil some specific purpose, was forced to remain overseas due to unforeseen circumstances. In a case such as this, the ATO would normally be satisfied that central management and control of the SMSF continued to be ordinarily in Australia.

If you have any residency queries please feel free to contact;

Cayle Petritsch
SMSF Specialist Advisor
T: 02 9984 7774
E: caylep@nac.com.au

Martin van der Saag
Director
T: 02 9984 7774
E: martinv@nac.com.au