Many SMSF trustees misinterpret the two-year residency rule that applies to the central management and control (CMC) test and may breach it even if they return to Australia within a 24-month period, according to an SMSF specialist adviser.
RSM Australia superannuation and SMSF partner Katie Timms said while trustees understand the CMC test and that it can be temporarily executed from overseas for up to two years, their intentions when departing, and the not the length of time they are away, dictate their compliance with it.
“Sometimes it appears to me the two-year rule is treated like the three-year property valuation rule where it’s just taken as a fact,” Timms said during a presentation at Class Ignite 2024 in Sydney today.
“[People say:] ‘Well, if I’m back within two years, everything’s fine, right?’ like how some say: ‘I don’t need to value my property because it hasn’t been three years [since the last valuation].’
“That’s not the case and the two-year rule is a guide when there’s an expected return within two years.
“We quite often think that we get two years and then we make the decision.
“We actually need to look at it at the time of the decision being made and if there is an intention to return. Do you have a return ticket? Do you still have a residence in Australia? What’s the plan and have you left people behind?
“At the time of making the decision to leave you can’t say ‘we’ll just go and see what happens if we’re back within two years’ because it’s actually a question of fact at the time of leaving, regardless of whether you come back within two years.
“This is really important to you know if your client comes to you and says they are going overseas but they don’t need to worry about their fund because they might be back within two years, but if not, they will then do a power of attorney to replace the trustee.”
