Superannuation

Members of SMSF's - Residency Issues

Self Managed Superannuation Funds (SMSF) or "DIY" Funds as they are often called, are now a very common aspect of the Australian superannuation landscape - these are funds with four or less members, who wish to enjoy some flexibility over the investment of their retirement funds. The members of the fund are required to be trustees of the fund or directors of a corporate trustee of the fund.

Income tax concessions available to superannuation funds are a direct function of the fund's ability to comply with prudential standards under Australian superannuation law. Non compliance with these standards can lead to heavy penalties - including a penalty tax rate of 47% - and the trustees/members must understand them.

The ATO announced in their compliance program for 2006/07 that they intended to focus on ensuring SMSF's met residency requirements. For a fund to be considered a complying fund which is eligible for tax concessions, it must remain a resident regulated superannuation fund for the entire year. In order to fulfill the residency requirements, the fund must:

• either have been established in Australia, or have any asset situated in Australia at the relevant time;
• have central management and control in Australia, or the fund trustees must satisfy the temporary absence rule;
• have at least one active member (an Australian resident who contributes to the fund or who has contributions made on their behalf), and
• the percentage of accumulated entitlements of resident active members is at least 50% of the total accumulated entitlements of all members. If a fund is without an active member, then only the first two requirements must be satisfied.

The ATO have indicated elsewhere that they have little discretion available in enforcing these requirements, so it is essential that trustee/members of SMSF funds seek professional advice prior to moving overseas unless it is for a relatively short period of time.

Complete the Superannuation Inquiry form