By Trish Power

Special residency rules apply to self-managed superannuation funds (SMSF). You need to be mindful of these residency rules if you plan to travel outside Australia for extended periods, live outside Australia for a significant length of time, or even permanently.

Under the special SMSF residency rules, as a SMSF trustee you can travel anywhere you like but if you intend to spend long periods overseas — in particular, plan to spend more than two years overseas — or you plan to live permanently in another country, then you’ll need to take some action to protect the tax concessions that your SMSF receives.

Linking tax concessions to SMSF residency

For a SMSF to receive tax concessions, the super fund must meet the definition of Australian superannuation fund to be considered a complying super fund for tax purposes. The SMSF must meet this definition at all times during the financial year.

If your SMSF fails to meet this definition during a financial year, then your fund’s earnings and fund’s assets (minus non-concessional contributions), will be subject to the highest rate of income tax: That is, 47 per cent. Your fund is hit with this tax for every year that your SMSF fails to meet the definition of Australian superannuation fund.

Meeting the 3 tests of residency

Your SMSF must satisfy three tests to be considered an Australian superannuation fund. The three tests are:

  • Your SMSF must have been established in Australia.

  • Central management and control of your SMSF is usually in Australia, although this test can be satisfied even when SMSF trustees are temporarily located overseas for up to two years.

  • Your SMSF must not have active members. Alternatively, if your SMSF does have active members, at least 50 per cent of your SMSF’s assets must be linked to those active members, and those active members must be Australian residents. An active member is a super fund member who makes a super contribution to the SMSF during the financial year.

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Your SMSF must meet all three tests to meet the definition of Australian superannuation fund. If you believe your SMSF’s residency may be at risk, or could be at risk in the future, seek guidance from the ATO or speak to your adviser.