SMSF Compliance Issues When Moving Overseas On A Temporary Basis

While Self Managed Super Funds (SMSFs) must ordinarily have their central management and control (CM&C) within Australia, there are instances where the CM&C may be outside Australia for a period of time under “temporary absence” rules. These rulings declare that a fund will retain compliance should this period of absence, wherein the CM&C is temporarily outside of Australia, not exceed two years. Thus, Members of the fund are able to move overseas for work purposes, so long as their visit adheres to the aforementioned time frame, without jeopardizing the compliance of the SMSF.

In conjunction with the “temporary absence” rulings, there are three additional residency tests used to determine compliance:
• The SMSF was established in Australia and the entirety of the fund’s assets remain in Australia;
• The central management and control (CM&C) of the fund is “ordinarily” in Australia; and
• The absent members, adhering to the 2 year time frame, remain Australian residents and hold at least 50% of the total market value of the fund’s assets. This also means that the fund must satisfy the active members test (Refer to TR2008/9 Para 9).

To avoid non-compliance issues, most members work overseas as non-residents for tax purposes. As such, compliance issues relating to temporary absences must be reviewed carefully. Non- resident members of a SMSF would render the fund non compliant due to a change in the residency status of the fund. In the event of such non-compliance, the following will need to occur to overcome the issues during member absence:

1) Members should cease all contributions to the fund while being a non resident, and become Non Active Members while away. Members could still contribute to a large public offer superannuation fund and then on return, after establishing residency, transfer those benefits back to their SMSF by way of “roll over”.

2) An “enduring power of attornery’ (EPOA) should be appointed for each member residing overseas. The EPOA must be appointed as trustee, and must undertake the strategic decisions of the SMSF (Refer to SMSFR 2010/2 Para 7). This should be done legally. They must not act as “mere puppets” of the members otherwise the CM&C of the fund may be considered as not being in Australia, and accordingly the fund could be rendered non-complying. The EPOA can be very extensive in nature and can allow an individual to have full control over all of the fund member’s financial and superannuation affairs. This control may be necessary while the members are residing outside Australia, however on return, the members should be able to regain control of the fund. Properly drafted appointment documents should provide for this. The EPOA will need to remain in Australia for the purposes of management and control of the fund.

3) At the same time the members should resign as trustees of the fund and the EPOA automatically take on all responsibilities and duties of the retiring trustees in their personal capacity, being careful to not act as agents for them.

4) The Trust Deeds of the fund would need to be checked to ensure that an EPOA may be legally appointed. Should the Deeds preclude this, they must be updated to allow the change.

5) Minutes relating to the resignation of trustees and appointment of EPOA are to be drawn up and passed together with notification to the ATO by way of Changes in Details advising of the change of legal personal representative (LPR).

All of the above cannot be done in retrospect.

As can be seen, there are strict rules that govern the compliance of SMSFs. If after reading this article you find that you are in need of clarification or more specific information, please feel free to contact our office on 02 9299 7044.

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