Legislation, Regulation, SMSF

Residency rule change may be closer

Residency SMSF Self-managed superannuation Active member test Safe harbour

The proposed changes to the superannuation residency rules first put forward in 2021 may be closer to coming to fruition.

The federal government has potentially provided an indication it will be taking action on the residency rules applying to SMSFs recently.

“The current government has stated it will change the introduction date for the new residency rules to the first quarter after the relevant bill receives royal assent, which means perhaps it is thinking of bringing that measure in,” Adviser Digest director and founder Peter Johnson noted.

“That’s the change to the definition of an Australian superannuation fund where the active member test will be removed, whereby you would still be able to make contributions while you’re overseas and increase the temporary safe harbour provision from two years to five years.”

Johnson recognised the legislation as it stands actually presents an issue for SMSF auditors in their reporting obligations.

“When you read the ruling on non-residency, and this is important for auditors, if the fund becomes non-resident, it loses half of its assets in tax and this needs to be reported. To this end, I’d imagine 45 per cent of the total assets in the fund would be material error in the financial statements,” he said.

According to Johnson, the government should be making a change to the existing wording to achieve its aim of relaxing these rules.

“The act says if you’re temporarily outside of Australia for up to two years, you’re still deemed to be in Australia. Under the common law residency test, and this is what we adopt because it’s a tax matter, if you are temporarily outside of Australia, you are considered to be ordinarily a resident of Australia,” he noted.

“If you are permanently outside of Australia, the minute you leave you are no longer considered to be an Australian resident so the superannuation safe harbour rules don’t apply.

“I think the government wants the safe harbour rules to apply more broadly so it needs to remove that word temporarily and leave it at two years.

“So that’s probably why they have to draft it correctly because at the moment the safe harbour rules mean nothing because you have to be temporarily outside of Australia and if you are temporarily outside of Australia, you are still in Australia so it doesn’t matter.”

The amendments to the superannuation residency rules were first proposed in the 2021 federal budget.

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