Administration, Compliance, SMSF

Offshore member status needs consideration

SMSF residency rules

SMSFs with members living overseas should be reviewing their stake in the fund to ensure they are not breaching residency rules, which have not changed despite government announcements.

SMSFs with members overseas that may fail the active member test can take steps to keep them in the fund, but this will be dependent on the actions of those still residing in Australia, a technical expert has noted.

BT Financial Group advice strategy and technical specialist Tim Howard said given there were no changes to the residency rules, despite government announcements to that end, where an SMSF has active members contributing or receiving rollovers, then at least half of the total market value of the fund’s assets must be attributable to active members who are Australian residents.

However, with more people working remotely, including from overseas locations, this has placed more emphasis on the SMSF residency rules.

“Let’s say we’ve got an active member who is a non-Australian resident and it looks like they have greater than 50 per cent of the fund’s assets, what do we do in that case?” Howard said.

“Make sure that non-resident ceases making contributions and ceases receiving contributions made on their behalf or if they’re wishing to make contributions at this stage, make contributions to an APRA (Australian Prudential Regulation Authority) public offer retail fund.”

If an SMSF holds over half of its assets under the ownership of a non-resident individual and the fund also includes members who are Australian residents, the situation has distinct implications.

“In that case, the resident members of the fund [can] contribute, [but] you’ve got to make sure that the non-resident members of the fund with over half the assets aren’t contributing,” Howard noted.

“To invert that, if we had resident members who had the majority of the fund’s assets and a non-resident member who had the minority of the fund’s assets [and] that non-resident member made a contribution, that would make them an active member.

“We need to make sure in that case that the resident member is also making a contribution.”

He also considered the case where a fund may have non-Australian resident members who possess greater than 50 per cent of the fund’s assets and are not active members.

“[If] we have non-resident members that have met a condition of release, all else being equal, there’s no reason why they couldn’t make a withdrawal or make a recontribution into the account of the resident member. That wouldn’t be an issue,” he stated.

“If the spouse remains here [in Australia], balance equalisation might also come into it. That could change the balance going forward so that non-resident members may make contributions to their fund.”

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