Changing Residency and SMSFs

Your self-managed superannuation fund (SMSF) is concessionally taxed to encourage you to save for your retirement.

If you choose to live overseas for a period then it is important to know that there is a danger that these concessions will be unwound.  Basically, if your SMSF ceases to be an Australian superannuation fund, it can result in your superannuation being taxed at penalty rate of 47% – nearly half your retirement savings!

How could that happen?  In order to receive the concessional treatment, your fund needs to be an Australian superannuation fund which means it meets the following three conditions:

1.       The fund was established in Australia, or has at least one Australian-based asset.

Most SMSFs will easily satisfy this requirement.

2.      High level decision making is carried out in Australia

This requirement is referring to decisions about the SMSFs investment strategies. It is fine if a trustee is temporarily outside of Australia, and allowance is made for absences of up to two years. After that, it is more difficult to establish that the absence is temporary and that high level decision making is ordinarily performed in Australia.

3.      Assets of fund are majority Australian held or there are no contributions from foreign residents

For this requirement to be met, either:

  • At least 50% of the fund’s assets must be attributable to superannuation interests held by Australians, or
  • No contributions can be made for foreign members.

Trustees need to exercise care that this requirement is not inadvertently breached where you are leaving Australia for an extended period. If you have any plans to live or work overseas, or are otherwise uncertain about whether your SMSF can satisfy these rules, talk to your Morrows advisor today.