Trustees and members of SMSFs may encounter problems on the residency status of their SMSFs when planning to go overseas for extended period of time.
For an SMSF to remain an Australian Superannuation Fund and retain its complying fund status, the SMSF must pass the residency require-ments. Subsection 295-95(2) of the ITAA 1997 provides that a superannuation fund is an ‘Australian Superannuation Fund’ at a time, and for the income year in which that time occurs, if:
1. The fund was established in Australia, or any asset of the fund is situated in Australia atthat time (Test 1); and
2. At that time, the central management and control of the fund is ordinarily in Australia (Test 2) ; and
3. At that time either the fund had no member covered by subsection (3) (an active member) or at least 50% of (Test 3):
(i) the total market value of the fund’s assets attributable to superannuation interests held by active members; or
(ii) the sum of the amounts that would be payable to or in respect of active members if they voluntarily ceased to be members; is attributable to superannuation interests held by active members who are Australian residents.
It is important to note that each of the above tests are “and” not “or” and therefore should all be satisfied.
Of the three(3) tests, it is most likely that the trustee will not meet Test 2 on central management and control and the SMSF will fail the residency tests.
However, the central management and control can be satisfied by appointing an Enduring Power of Attorney (“EPOA”).
Section 17A (3) of the SIS Act, states that a superannuation fund does not fail to meet the definition of a Self Managed Superannuation Fund where the legal personal representative of a member of the fund is a trustee of the fund or a director of a body corporate that is the trustee of the fund, in place of the member; during any period when:
- · The member of the fund is under a legal disability; or
- · The legal personal representative (LPR) has an enduring power of attorney in respect of the member of the fund; or
To meet this requirement, the EPOA will need to be appointed as Trustee (or director of a Corporate Trustee) in their capacity of legal personal representative of the members. This will mean that the member leaving for overseas will need to be removed as trustee or director of the fund (however still remain member).
The process required for appointing an Enduring Power of Attorney for a SMSF where a member is heading overseas is:
- · Arrange for preparation of Enduring Power of Attorney
- · Arrange for ASIC forms regarding removal of existing directors and appoint LPR as director
- · Arrange for ATO Change of Details form to advise the Regulator of the appointment of the LPR
- · Prepare associated trustee minutes in respect of the above.
Upon return of the member to Australia, notification to both ASIC and ATO is required to appoint the member as director again.
Mike Alvarez, a CPA and Registered Tax Agent, is the director of QA Audit and Tax Services Pty Ltd, a CPA Practice. He is also an ASIC registered SMSF Auditor. Tel. 02 9628 2933.
