Administration, Compliance

Offshore control of SMSFs possible, but limited

SMSF overseas control

SMSF trustees can exercise control over their fund while overseas, but recent ATO rulings have emphasised that major decisions must take place in Australia.

SMSF trustees can control a fund from overseas, but need to take care major decisions concerning the fund are still made within Australia, according to an SMSF technical expert.

Heffron SMSF technical and education services director Leigh Mansell said the issue of SMSF trustees, who may be overseas, controlling a superannuation fund in Australia had been the subject of a number of private rulings from the ATO, which had recognised trustees may be overseas for extended periods.

Speaking as part of a recent webinar, Mansell added the rulings had been sought by trustees concerned about whether their SMSF still met the definition of an Australian super fund so they could access tax concessions available to the fund.

She said the measure being applied to SMSF trustees being overseas for an extended period was the central management and control (CMC) test, which could operate from both an Australian and overseas location, but required all trustees to be active regardless of location.

“The ATO has recognised that SMSF trustees travel and when they are overseas may make high-level decisions, and the questions under consideration are if the trustee will be temporarily absent and if they are ordinarily in Australia or not,” she said.

“What we are looking at here are the strategic and high-level decisions ordinarily being performed by someone who is physically in Australia.

“This is a ‘feet test’. Where are your feet ordinarily when making fund-related decisions? This is also a physicality test and tax residency status is not relevant for CMC as it is all to do with your physical location.”

She noted trustees who are overseas can execute high-level decisions as long as they are temporarily absent with an expected date of return.

“Indicators of this return are tied to the period of absence. Is it a defined period with an intent to come back and is it linked to an event of a finite nature?” she said.

“If a trustee said they were going overseas with no idea of how long they will be gone and were not buying a return ticket, alarm bells should go off as there may be a CMC issue with the fund because there is no definitive time frame for return.”

She noted CMC could operate in two places at once, but warned the Australian-based trustee could not take a passive role in the management of the SMSF.

“Trustees will need to be sure the person in Australia takes a substantial and active role in decision-making and they should not be a patsy for the trustee overseas. If they are only following the line of the person overseas, then the CMC lie with that other person and will create problems under the definition of an Australian super fund if that person is not temporarily absent,” she said.

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