Compliance, Superannuation

Returning trustees can fail control test

SMSF control test

An SMSF will fail the central management and control test even if trustees who left for an indefinite period return within two years.

SMSF trustees who leave Australia for an indefinite time period but return within a two-year time frame will fail the central management and control (CMC) test as they will not be considered as having qualified for a temporary absence, according to a technical specialist.

BT technical services technical consultant Tim Howard said the rules around temporary absences and their application to the CMC test, which requires control of an SMSF to ordinarily be run from Australia, were applied at the time of departure of a trustee and not the time of return even if that time frame was within the two-year safe harbour contained within the Income Tax Assessment Act.

Howard illustrated this through an example of a couple who are members and trustees of their SMSF and in 2019 took an extended overseas working holiday with no fixed return date and prior to leaving ended the lease on their home, sold their furniture, but continued to maintain personal and SMSF bank accounts in Australia.

“If they go overseas and return three years later, because the absence is greater than two years the temporary absence under the safe harbour isn’t going to come in,” Howard said today during a BT Academy webinar.

“Due to the indefinite nature of the trip, very clear length of stay and diversifying or divesting themselves of the major assets, this is not going to be considered a temporary absence.

“Would the same apply if they returned to Australia within two years, say after 18 months, due to increasing difficulty getting work and global travel problems making it difficult for them to do what they want to do overseas? Was this absence from Australia temporary?

“Can they say: ‘We’ve been overseas for 18 months and are going to call that a temporary absence, use that safe harbour and not have an issue because our intention was to return some time?’

“Well, it’s going to be no again due to the indefinite nature of the trip, the length of stay and the fact that they divested themselves of major assets.

“That the absence ended up being less than two years will not be relevant because of the permanent and indefinite nature of their leaving [in 2019].

“When they took that trip, the facts at the time – which can’t be retrospective – indicate they were not going to return and so no they have no ability to use the safe harbour exemption.”

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