With the rise in popularity of these accounts its highly likely that you may have a Australian Expat SMSF, otherwise known as a Self-Managed Superannuation Fund. These accounts add an extra layer of complexities in how Australian expats manage their superannuation.
We often find that when Australians first become an expat, and they manage their superannuation through an SMSF, they didn’t realise that by moving overseas they run the real risk of making their SMSF non-compliant.
To be eligible for concessional tax treatment, a superannuation fund needs to meet the definition of ‘Australian superannuation fund’ (ASF), along with other conditions.
Under s.295-95(2) of the ITAA97 a super fund is considered to be an ASF if all three of the following conditions are met:
The fund was established in Australia.
Central Management and Control (CMC) of the fund is ordinarily in Australia.
The fund has no active members or at least half of the funds’ assets relative to active members who are Australian residents.
Fund Established in Australia
An expat SMSF is established in Australia when the initial contribution to start the fund is paid to and accepted by the trustee or trustees in Australia. It is not necessary for the trust deed to be signed and executed in Australia. If a super fund was not established in Australia, it will satisfy the test if at least one asset of the fund is situated in Australia at the relevant time.
The location of an asset is determined by reference to the type of asset and the common law rules established by the courts for assets of that kind. This is a ‘once-and-for-all’ requirement that, when satisfied, is relevant for all times. The location of an asset is determined by reference to the type of asset and the common law rules established by the courts for assets of that kind. This is a ‘once-and-for-all’ requirement that, when satisfied, is relevant for all times.
Central Management & Control
The ATO says the central management and control (CMC) of a super fund involves a focus on the who, when and where of the strategic and high level decision making processes and activities of the fund. In the context of the operations of a super fund, the strategic and high level decision making processes include 4 key aspects.
Formulating, reviewing and updating the fund’s investment strategy.
Formulating a strategy for managing reserves
Monitoring and reviewing investment performance.
Determining how the fund’s assets are to be used to pay member benefits.
In the majority of cases, the other principal areas of super fund operation, such as the acceptance of contributions and the investment of the fund assets, are not of a strategic or high level nature to constitute CMC. These activities form part of the fund’s day-to-day operations.
Establishing who is exercising the CMC of a super fund is a question of fact to be determined with reference to the circumstances of each case.
While it’s the trustee of the fund who has the legal responsibility or duty to exercise the CMC of a super fund, the mere duty to exercise CMC doesn’t, of itself, constitute CMC.
If the trustee performs the high level duties and activities of the fund, they will be exercising the CMC of the fund in practice.
There may be situations where a person other than the trustee is exercising the CMC of the fund. However, the mere fact the trustee uses an investment manager doesn’t mean the manager is in any sense exercising the CMC of the fund.
In some situations, a fund’s CMC may be outside Australia for a period of time. In general, the fund will still meet the ‘ordinarily’ requirement if its CMC is temporarily outside Australia for up to two years.
Also, the fund can still meet this requirement even if the CMC is temporarily outside Australia for more than two years. However, if the CMC of the fund is not temporarily outside Australia, it will not be ‘ordinarily’ in Australia at a time even if the period of absence of the CM&C is 2 years or less.
The Active Member Test
The third test that must be met is the active member test. This is satisfied if, at the relevant time:
A member is an active super fund member at a particular time if they are a contributor to the fund at that time, or are an individual on whose behalf contributions have been made. However, a member is not an active fund member at the relevant time if:
As you can see careful planning needs to be done in order to preserve the benefits of your retirement savings. If you need assistance in ensuring that your Self-Managed Super Fund is compliant before you become an expat or would like to explore the alternatives available please feel free to contact us.
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