A recent ATO private binding ruling (PBR) has confirmed an SMSF can still be considered an Australian superannuation fund under taxation law if a member moves overseas for more than five years, but this status may depend on meeting the active member test and the nature of any contributions made.
Institute of Financial Professionals Australia (IFPA) head of superannuation and financial services Natasha Panagis noted the PBR in question demonstrated the requirements a fund would need to meet to maintain compliance with the Income Tax Assessment Act (ITAA) 1997.
Specifically, PBR 105221331 involved a situation where an SMSF member left Australia but planned to return regularly over the next five to six years. The other two members stayed in Australia, with one holding all of the fund’s assets.
“The ATO ruled that the fund was an Australian super fund under the ITAA because it satisfied all three tests in that particular financial year in question,” Panagis told attendees during a webinar hosted by IFPA last week.
“The fund was established in Australia, the strategic decision-making processes for the SMSF were undertaken by the member residing in Australia and that member consulted with the others, so the central management and control test was satisfied.”
She pointed out since none of the members intended to contribute in the current income year, the ATO determined there were no active members and the SMSF would be classified as an Australian superannuation fund under section 295-95 of the ITAA.
“Active members are members who are making fund contributions or have contributions made for them on their behalf and this test is satisfied if the fund has either no active members or if it does, they must be Australian residents who hold at least 50 per cent of the fund’s assets or at least 50 per cent of those amounts are payable to active members,” she noted.
“The ATO found for the active member test there were no further contributions made to the SMSF after the member residing overseas became a foreign resident and the remaining active member was an Australian resident, had entered retirement phase and commenced an income stream, and so [the active member test] was satisfied.
“The key thing to remember here with these three tests is that if a fund fails to satisfy one of the tests at a particular point in time, then it will not be seen to be an Australian super fund, even if it satisfies the other two conditions.”