Advisers could use several strategies in situations where SMSF trustees decide to leave the country to avoid their fund becoming a non-Australian superannuation fund.
“A lot of people don’t realise that going overseas could potentially have quite catastrophic consequences to their SMSF, even if it’s for a year or two,” Colonial First State senior technical manager Craig Day told selfmanagedsuper.
“Advisers want to clarify what the rules are and there are some opportunities they could consider.”
In order for an SMSF to be a complying Australian superannuation fund, it must be a resident regulated fund throughout the year of income by satisfying three tests at all times: that the fund was established in Australia or held an asset situated in Australia, the central management and control test and the active member test.
If trustees fell outside of the rules, “unfortunately they’re done”, so when making the decision to set up an SMSF, they should be made aware of the risks of going overseas and also possible strategies to avoid compliance implications, Day said.
As an example, in relation to the central management and control test, if one spouse in a couple picked up work overseas and the other spouse still lived in Australia, they were still regarded as a resident, he said.
“The ATO’s (Australian Taxation Office) view is that as long as you’ve got at least 50 per cent of the trustees residing in Australia and participating in the central management and control decisions, then the fund’s central management and control will be located here,” he said.
“There’s also another potential strategy – under the Superannuation Industry (Supervision) Actyou’ve got an opportunity to appoint someone else to act as the trustee of your SMSF.
“You can give someone an enduring power of attorney and appoint them as a trustee of the SMSF and after residing as a trustee yourself, that would allow them to go overseas as long as they continue to exercise the central management and control of the fund for the year.”
However, he said it was a big step for trustees to give someone else complete control over the SMSF.
“Some people have gone that way if they’ve got someone they trust enough and capable to do it,” he said.
“But an important issue is that if instructions for the fund are still coming from overseas, that’s where the central management and control is being exercised.”
Another option could be to convert the SMSF to a small Australian Prudential Regulation Authority fund, where a registrable superannuation entity acted as trustee.
“What you would do is transfer or change status to one of those funds and you would resign as a trustee and appoint one of those independent trustees to run the fund,” Day said.
“In that situation, that will satisfy the central management and control test, but you still have to be careful with the active member test.”
In the case of SMSF trustees leaving the country for an extended period of time, resulting in a disconnect from the fund as well as the Australian market, he said the winding up of the fund also occurred on occasion.
In the past 14 years in his role, he said he had seen international employment markets open up.
“It was more common for Australians to go off to London and New York, but now China has opened and therefore people are moving and you’ve got more international movement of labour,” he said.
“So when you see more and more people moving out of Australia to another country for work purposes, that’s when you start to see an increase in enquiries about clients picking up contracts overseas and what that means for their SMSF.”
