Compliance, Regulation, SMSFA

SMSF residency rules neglected

SMSF residency rules

The government has missed an opportunity to clarify future changes to SMSF residency rules as part of a current consultation process.

The SMSF Association (SMSFA) has expressed disappointment with the federal government’s decision to exclude changes to the SMSF residency rules from a current consultation process considering tax residency reform.

Treasury released the “Modernising the individual tax residency rules” consultation paper in July, which incorporated recommendations from an earlier report prepared by the Board of Taxation in 2019. The former government signalled its intentions to proceed with these residency changes, both for individual taxpayers and SMSFs, in the 2021/22 budget.

However, according to the SMSFA, updates to residency requirements specific to SMSFs appear to have been left out of the current round of consultations.

“We saw in the former government’s budget in the 2021/22 year announcements around reforms to do with residency. This included reforms for individuals, but also proposed amendments for SMSFs and SAFs (small Australian Prudential Regulation Authority (APRA) funds),” SMSFA head of policy and advocacy Tracey Scotchbrook told attendees at an SMSF industry update webinar last week.

“Unfortunately, this [consultation paper] is expressly around individual taxation, it is not around SMSFs [and] we had hoped that [SMSF residency rule updates] would be encapsulated within this particular consultation.

“[In] earlier conversations with Treasury, it was suggested that perhaps they may be included as a parcel of work, and that’s not to say they are not being looked at, but it looks like from a consultation perspective, they have been purposely separated from one another.”

Scotchbrook noted the industry body is still awaiting clarification on several key measures excluded from the consultation paper and will continue to advocate for these changes in discussions with Treasury.

“This was around the removal of the central management and control test, an increase in the temporary absence rule from one to five years and the removal of the active member test. The [removal of the active member test] is a really important one because otherwise people are having to have duplication of superannuation accounts,” she said.

“So [trustees might have] an SMSF and they have a separate APRA fund with which to make contributions whilst they are overseas, so we’ve got duplication of costs. That also doesn’t help an SMSF maintain its liquidity if it’s not receiving regular contributions. Also noting that the temporary absence rule was intended to align with more modern workplace practices.

“So there was a number of good policy and practical reasons why these measures should come into play.

“We have been having ongoing conversations with Treasury and we keep raising this at every opportunity around the SMSF measures that were announced at the same time. We will continue to advocate for the residency rules to be legislated and put in place.”

The consultation round for the tax residency rules paper will close on Friday.

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