SMSF trustees planning on being overseas for any length of time should deal with who will run and operate their fund before they leave with an SMFS lawyer casting doubt on the effectiveness of the central management and control (CMC) safe-harbour test in cases of those who have already left the country.
DBA Lawyers director Shaun Backhaus said while the SMSF sector was waiting for changes to CMC test announced in a previous budget people still misunderstood how the safe-harbour provisions set out in section 295.95 of the Income Tax Assessment Act 1997 operated.
“That section says ‘To avoid doubt, the central management and control of a superannuation fund is ordinarily in Australia at a time even if that central management and control is temporarily outside Australia for a period of not more than two years,” Backhaus stated during a webinar hosted by DBA late last week.
“So to fall within that safe-harbour the CMC still needs to be temporarily outside Australia but if [the trustee’s actions indicate their absence is] permanent from day one, such as you’ve sold your house, moved your kids and your dog and left Australia, it’s not temporary. [Then] the two years doesn’t help you at all.
“In the same way, you can be temporarily outside Australia for 10 years and the safe harbour doesn’t limit that.”
According to Backhaus dealing the CMC while out of the country was difficult and often created problems and should have been addressed earlier.
“Sometimes I have clients say they left Australia 18 months ago so now they have got to get this sorted and my response is that is not how the test works,” he revealed.
“Safe harbour doesn’t always apply. It’s still got to be temporary. Did you just depart Australia or are you coming back at some point?
“My recommendation is don’t ever rely on the safe-harbour as it doesn’t actually give you anything.
“You’ve still got to get it sorted before someone goes overseas, or else it’s just a big risk.”
He added failing the test meant the fund would not meet the definition of an Australian superannuation fund and it would any tax-free components would lose that status and may be subjected to further taxes and penalties.
