Is your Australian superannuation fund tax compliant?

PassportTo be a complying Australian superannuation fund and receive tax concessions, your SMSF needs to be a resident regulated super fund at all times during the income year for tax purposes.

Conditions to be met

The residency test has three conditions and your fund must satisfy all three conditions at the same time during the year.

  1. Your fund must be established in Australia, or at least one of the fund’s assets must be located in Australia.
  2. The central management and control of your fund should be in Australia.
  3. Your fund must have no active members or have active members who are Australian residents and who hold at least 50% of the total market value of the fund’s assets.

Often trustees mistakenly interpret the residency test with the Australian residency test for tax purposes. In this blog, I would like to focus on point number 2 above “Keeping central management & control in Australia”.

How to satisfy the residency test

With more and more people choosing to relocate and live overseas on an ongoing basis, may it be for work commitments or choice of lifestyle, satisfying the residency test is brought even more into focus. Central management and control of your fund generally means the person responsible for making strategic decisions for the SMSF such as formulating, reviewing and updating the investment strategy of the fund; determining how the assets of the funds are to be used for members’ benefits.

In some circumstances, a fund’s central management and control may be temporarily outside Australia for a period of time. However, the fund will still meet the requirements of this test if it’s not more than two years.

There are a few strategies that can be put in place to satisfy the above test.

  • Appoint a Legal Personal Representative (LPR) to take over the same duties from the non-resident member; execute an Enduring Power of Attorney in favour of the LPR.
  • If the fund has a corporate trustee, the LPR must be appointed as a director of the trustee company.
  • Update the trust deed to ensure the appointment of LPR is in accordance with the trust deed and SIS Regulations.
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DISCLAIMER: This information is an interpretation of rules, regulations and standards. It should not be considered as general or specific advice and neither purports, nor is intended to be advice on any particular matter. No responsibility can be accepted for those who act on the contents of this publication without first obtaining specific advice. Liability limited by a scheme approved under Professional Standards Legislation.