by Abra Chowdhury

To be eligible to take advantage of concessional tax rates, a super fund must meet the definition of “complying superannuation fund” which includes being an “Australian Superannuation Fund”.

It is an ongoing test, so if at any time a fund fails, then they won’t meet the definition of “complying superannuation fund”. Where a SMSF fails to meet the definition, it could be taxed at up to 45% on both assets and income! Check out Residency Test Flowchart.

The following 3 tests are applied to determine the residency status of a SMSF:

1. The Fund was established in Australia or must have an asset located in Australia. A Fund is ‘established in Australia’ if the initial contribution is made and accepted in Australia. If a fund was established overseas it must always hold assets in Australia to meet the definition.
2. The second leg requires the central management and control of the SMSF to be ordinarily in Australia. This means the strategic decisions of the Fund, including formulating and implementing an investment strategy and reviewing investment performance, must be performed in Australia.

The fund will continue to meet this requirement even if the trustee temporarily lives outside Australia for up to two years. If the member is overseas for longer than 2 years, the trustee may appoint a power of attorney, to ensure central management and control of the fund remains in Australia.

3. Lastly the Fund must have no active members or where it does have active members, they must be Australian residents who hold at least 50% of the fund value. An active member is one who makes or receives contributions during a financial year. To avoid any problems it is recommended that contributions by or on behalf of non-residents be made to a public offer fund.

If you have SMSF clients moving overseas for more than 2 years, we recommend you seek professional advice about maintaining the fund’s residency status. The ATO have indicated they will not pursue funds where trustees have been stranded overseas due to COVID-19.

Please contact us if you need a hand on 1300 364 597 or email the team at info@smsfengine.com.au.