Residency Issues for Trustees of SMSFs

This article deals with what happens when the trustee of a self-managed super fund (SMSF) moves overseas.

For a SMSF to be a complying fund and receive tax concessions, the SMSF has to be an Australian superannuation fund. To be an Australian superannuation fund, the SMSF must satisfy three tests;

It has to:

• be established in Australia or have an asset in Australia;
• satisfy the trustee presence rule; and
• satisfy  the active members asset rule

1. The fund must be established in Australia or have an asset in Australia

For a SMSF to be considered an Australian superannuation fund it has to have been established in Australia or have any of its assets situated in Australia. So any SMSFs not set up in Australia need to make sure that at least one asset is in Australia at all times.

2. The trustee presence rule

The trustee presence rule says that the central management and control of the SMSF must be in Australia.

But what does this mean? The ‘central management and control’ of an SMSF refers to the high-level decision making involved in running a fund. For example, developing and implementing the investment strategy. Under super and tax laws, these high-level decision making must be made in Australia. So if the trustee is overseas, then the central management and control will also be overseas.

But there is an exception to this rule. A fund will comply with the legislation provided the central management and control of the SMSF remains ordinarily in Australia. This means that if a trustee exercises their duties overseas for a period less than two years, the central management and control of the SMSF remains in Australia.

So what happens if you intend to spend more than two years overseas?  You can appoint an enduring Power of Attorney to act on your behalf. Appointing an enduring Power of Attorney allows someone to make financial or legal decisions for you. In terms of SMSF, this will allow someone to act as the trustee of the SMSF for the time you plan to be overseas. This will make sure the fund remains compliant with the super laws. In order to appoint an enduring Power of Attorney you need to make sure your trust deed allows it. Therefore, remember to discuss this issue with your solicitor when drafting the trust deed.

when drafting the trust deed.

3. The active members asset rule

An active member is a member who is currently contributing to the fund or has contributions made on their behalf.

The final test requires:

• non-resident members to have less than 50% of the total entitlements which active members have in the fund; or
• the accumulated entitlements of non-resident active members to be less than 50% of the total entitlements which active members have in the fund

in order to satisfy the requirement that a SMSF be an Australian superannuation fund.
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