Financial Planning, Superannuation

Advice to overseas clients may be restricted

SMSF client overseas advice

SMSF clients living overseas may find they cannot receive advice from Australia or set up alternative structures to manage their interests despite recent changes announced in the budget.

SMSF advisers with clients working overseas should be careful when providing them advice and need to acknowledge an enduring power of attorney (EPOA) cannot be put in place until they have returned home.

BT head of financial literacy and advocacy Bryan Ashenden and BT SMSF strategy national manager Neil Sparks said the recent changes in the budget to the residency requirements and active member test, as well as travel restrictions due to COVID-19, have raised interest in what can be done for SMSF trustees overseas.

Using an example of an SMSF trustee currently working overseas but planning on staying longer than the current two-year residency requirement, Ashenden said the provision of advice was limited by the location of the SMSF client.

“From an Australian perspective there are no issues in terms of providing advice to someone overseas, but there are legal requirements in some foreign jurisdictions that state a person who is in that jurisdiction can only receive advice from someone in the same country, which prevents you from providing advice,” he said at the recent SMSF Association Virtual Technical Summit 2021.

“That’s the first threshold issue and the rules vary across countries and advisers should get information about this first, and it may be something to discuss with your licensee.”

Sparks said an SMSF trustee, regardless of the length of time they have been away, could not use an EPOA to extend their absence as that still required their physical presence for it to be executed.

“An SMSF trustee can’t reset the two-year period because the old rule about returning to Australia for 28 continuous days has been abolished, so this situation is up in the air,” he said.

“There have been extensions for people trapped overseas because of COVID, but this has been a curly one because I believe the documents have to be exercised in Australia to appoint an EPOA.”

He added SMSF trustees may, however, benefit from the ability for an SMSF to have up to six members as that figure could impact the active member test and its requirement that more than 50 per cent of the fund balance remains in Australia.

“If you add members four, five or six into the fund, you could take the fund balance to the point where the person who is non-resident has less than 50 per cent and the fund still meets the active member test,” he said.

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