When you go overseas to work or travel for an extended period of time, ensuring that your SMSF stays complying is probably the last thing on your mind. That is exactly why you should pay attention since your SMSF may have issues meeting the central management and control test as well as the active member test.
The failure of either of these tests at any point during the year could mean your SMSF becomes a non-complying fund with the income of the fund being taxed at the highest marginal rate.
Do you have a self-managed super fund (SMSF) and are thinking of travelling overseas? Depending on how long you’re away for or plan to be away for, there may be some issues to consider to ensure that your SMSF stays as a complying superannuation fund and continue to be eligible for concessional tax treatment.
To be a complying superannuation fund an SMSF must first be an Australian superannuation fund. There are 3 tests a fund must satisfy to be treated as an Australian superannuation fund, these three tests are generally referred to as the establishment test, the central management and control test, and the active member test. All three tests need to be satisfied at the same time in the same income year for the fund to meet the definition of an Australian superannuation fund. Issues arise in relation to the latter two tests when members/trustees of SMSFs travel overseas.
In this article we will examine the central management and control test, which requires that at a particular time, the central management and control of the fund is ordinarily in Australia.
It usually involves determining whether, in the ordinary course of events, the central management and control of the fund is regularly or usually or customarily exercised in Australia. Whilst there must be some element of continuity or permanence, temporary absences are allowed.
If you’re thinking of going overseas, the ATO considers the following factors to be an influence when determining whether central management and control is ordinarily in Australia:
- the length of stay overseas;
- where the trustee meeting were held;
- whether the members/trustees intended to return to Australia and whether this intention was abandoned at any stage;
- whether a home was established outside of Australia;
- whether the members/trustees continued to maintain their home and other assets in Australia or had other associations with Australia;
- if members/trustees had established a home overseas, whether they validly delegated their trustee duties to an Australian based resident and allowed them to perform that task independently without participation from the overseas based trustees.
For example, if you and your spouse are members and trustees of a SMSF and decide to go overseas for an indefinite period of time, while there, you establish a new home and ran trustee meetings for your SMSF at the overseas location, you may find that your SMSF no longer meets the central management and control test. Of course, in applying the test there may be a wide range of personal circumstances that would affect the outcome. However, if you envisage that you may be away for an indefinite period it may be wise to err on the side of caution and validly delegate your trustee duties to an Australian based resident.
Want to know more?
Next week we will examine the active member test that SMSFs have to satisfy to be a complying fund (provided the other tests are satisfied). In the meantime, if you’re thinking of going overseas, and you’re not sure about how it will affect your SMSF, contact us today.