The tax concessions afforded to complying super funds, including SMSFs are subject to strict residency criteria. Failure to comply can lead to significant penalties being taxed against both the assets and income of the fund.
Three tests exist in determining whether a SMSF is an Australian super fund, including that:
- The fund was established in Australia, or at least one of its assets is located in Australia;
- The central management and control (CM&C) of the fund is ordinarily in Australia; and
- The fund either has no active members or it has active members who are Australian residents and who hold at least 50% 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.
Visit the ATO website for more information on how these rules operate and if an SMSF meets these residency requirements
The following FAQ has been added to the ATO’s COVID-19 page for self-managed super funds:
Question: After temporarily residing overseas for less than two years, we were about to return to Australia but became stranded overseas because of the COVID-19 health crisis. This forced absence means we will be out of Australia for more than two years. What will this mean for our SMSF?
Answer: An SMSF must be an Australian super fund to be a complying fund and receive concessional tax treatment.
To be an Australian super fund an SMSF must meet three residency conditions, see Check your fund is an Australian super fund. The second and third conditions are relevant in this case.
The COVID-19 health crisis has resulted in many countries imposing travel bans and restrictions and a high degree of uncertainty generally around international travel.
If the individual trustees of an SMSF or directors of its corporate trustee are stranded overseas due to COVID-19, in the absence of any other changes in the SMSF or the trustees’ circumstances affecting the other conditions, we will not apply compliance resources to determine whether the SMSF meets the relevant residency conditions.
The residency rules for SMSFs
It is important to remember that in determining the CM&C issue, the income tax laws look at the intention of the individuals in determining whether a period of absence is temporary or not.
To understand this further, let’s consider the following example to understand how the ATO will ordinarily not apply compliance resources where the absence remains temporary as a result of the individual’s inability to travel due to the Coronavirus.
Joseph was seconded to work in the London office of his employer for 2 years and was accompanied by his wife Marian. He started this secondment on 10 April 2018.
It was Joseph’s intention to return to Australia within the next month, however due to additional COVID-19 travel restrictions he is unable to return home.
During this time of absence, Joseph and Marian have not established a home outside of Australia during this period of absence and have maintained bank accounts, private health cover and more in Australia, including having travelled back for Christmas in 2019. During this time, as trustees of their SMSF, the CM&C was exercised at trustee meetings in London.
As a result the CM&C remains ordinarily in Australia, regardless of the fact that Joseph and Marian’s time in London will likely extend beyond two years.
A key difference in how the ATO might apply resources would be where Joseph and Marian’s intention changes and they abandon their intentions to return to Australia. This may be because the role back in Australia may no longer exist or has been significantly altered since leaving. It is the intention change that immediately restates that the CM&C no longer resides in Australia.
COVID-19 SMSF page
For more information on a range of COVID-19 SMSF topics, including available training and documents you can visit our dedicated page on the Smarter SMSF website,