Moving overseas is never a simple undertaking. But the process of selling your property and tying up your affairs in Australia can become especially intricate if you’re a member of a self managed super fund (SMSF).
Australians love to travel and it’s not unusual for an Aussie to decide to pursue their career on the other side of the world.
According to the Australian Bureau of Statistics, there were over 7 million migrants living in Australia in 2018. In the year to 30 June 2018, 289,000 people left Australia to live overseas.
However, while many Australians dream about exploring personal and work opportunities overseas, there are several things to consider. This includes SMSF compliance.
If you’re an SMSF trustee and plan to go overseas for an extended period of time, the Australian Taxation Office (ATO) and Netwealth advise that you seek professional advice about maintaining the residency status of your fund.
In order to be compliant in Australia, an SMSF must be an Australian super fund at all times.
Remember, if you fail the residency test, you’ll face severe consequences, as your fund will become non-complying.
There are three residency conditions that your fund must meet:
1. The fund was established in Australia, or at least one of its assets is located in Australia.
The fund was ‘established in Australia’ if the initial contribution to establish the fund was paid and accepted in Australia.
2. The central management and control of the fund is ordinarily in Australia.
This means the SMSF’s strategic decisions are regularly made, and high-level duties and activities are performed, in Australia. It includes formulating the investment strategy of the fund, reviewing the performance of the fund’s investments, formulating a strategy for the prudential management of any reserves, and determining how assets are to be used for member benefits.
In general, your fund will still meet this requirement even if its central management and control is temporarily outside Australia for up to two years. If central management and control of the fund is permanently outside Australia for any period, it will not meet this requirement.
3. The fund either has no active members or it has active members who are Australian residents and who hold at least 50 per cent of:
The total market value of the fund’s assets attributable to super interests; or
The sum of the amounts that would be payable to active members if they decided to leave the fund.
Note: For the purposes of condition three, a member is an ‘active member’ if they are a contributor to the fund or contributions to the fund have been made on their behalf.
Appointing a power of attorney
If you’re a member of an SMSF and are planning to move overseas, appointing a resident enduring power of attorney (POA) to act as the trustee on your behalf may be an option.
Note: your replacement will be governed by the fund’s trust deed and will need to comply with the Superannuation Industry (Supervision) Act.
You can appoint a POA by following these steps:
- Choose someone who is a resident of Australia that you know and trust to provide the services;
- The individual will need to complete a trust deed addendum, consent to act as trustee and a trustee declaration;
- If your fund has a corporate trustee, the directors of the corporate trustee will need to inform ASIC of the change. The POA will then need to be added into the fund as an alternate director; and
- Inform the ATO of the appointment of the POA.
ATO case study
Andrew works for a large international group of companies. He and his wife, Jane, are trustees and members of their SMSF.
From 1 February 2009 Andrew is transferred to an overseas company for an indefinite period of time. In accordance with the relevant state legislation, Andrew and his wife each execute an enduring power of attorney in favour of their trusted friend and retired accountant, Trevor.
In addition, Andrew and Jane both resign as trustees of their SMSF and appoint Trevor as the trustee.
The appointment of Trevor as trustee is. Other than the fact that Andrew and Jane are not trustees of the SMSF, the superannuation fund satisfies the other requirements of the definition of an SMSF.
Winding up your fund
In many cases, trustees who know they will be away from the country for more than two years may choose to wind up their fund.
Here are some steps you should consider if you’re looking to close your fund, which a financial adviser can help you with:
- Check the trust deed of the SMSF – The trust deed may include wind-up instructions, so this should be your first step.
- Written agreement – All trustees or directors will need to agree about the wind-up and you need to document their decision. This is vital to avoid unnecessary complications.
- Pay existing member benefits – You need to payout or rollover the balance of members’ super to another fund; this may involve selling assets or transferring them without selling the underlying investment (in-specie transfer).
- In the case of pension members, trustees must ensure that at least the minimum pension (pro rata) has been paid.
- Prepare draft financial statements – Draft financial statements are important as they determine the value of each member’s benefits.
- Sale or transfer of assets – Trustees must arrange the sale of assets or arrange for them to be transferred in specie either to the member, if exiting super altogether, or to the receiving fund directly if rolling over.
- Final accounts and audit – A final set of accounts and an audit must be completed before you lodge your last SMSF annual return, making sure to indicate your fund is being wound up.
- Tax and compliance – You need to pay any outstanding tax and other debts (or arrange to) before closing your fund’s bank account.
- Notify the ATO – Notify the ATO in writing within 28 days of the fund being wound up.
- If you’re a corporate trustee, the steps may be slightly different and you may want to apply to ASIC for a voluntary deregistration of the company.