Key takeaways
- An SMSF must meet residency tests to stay a complying Australian super fund.
- The three tests cover where the fund is established, where it is managed, and member activity.
- Members moving overseas can put the fund's residency at risk if not planned for.
- Failing the residency tests can make the fund non-complying, which is very costly.
An SMSF only keeps its concessional tax treatment while it remains an Australian superannuation fund. That status depends on residency tests, and they catch out trustees who move overseas without planning. Get this wrong and the fund can be taxed at the top rate, so it is worth understanding before anyone travels long term.
The three residency tests
To be an Australian super fund, the SMSF must satisfy all three of the following:
- Establishment. The fund was set up in Australia, or at least one of its assets is in Australia.
- Central management and control. The strategic decisions of the fund are ordinarily made in Australia. A temporary absence is allowed, but a prolonged move overseas can breach this test.
- Active member test. Either there are no active members (members contributing or having contributions made for them), or Australian-resident active members hold at least half of the fund's balances.
Why members moving overseas is the risk
The tests can be quietly breached when a trustee relocates overseas for an extended period and keeps making decisions or contributions from abroad. The central management and control test and the active member test are the ones most often affected. We cover the practical options in members overseas.
Options if you are heading overseas
Depending on your situation, options can include appointing an enduring power of attorney to make decisions in Australia, pausing contributions while abroad, or restructuring the fund. The right path depends on how long you will be away and the fund's makeup, so get advice before you go rather than after.
Confirm the current rules
Residency rules have been the subject of proposed change, including measures to extend the temporary absence period and remove the active member test. Whether and when these apply can shift, so confirm the current position on the ATO's SMSF residency guidance before relying on any timeframe.
Frequently asked questions
- What happens if my SMSF fails the residency tests?
- The fund can become non-complying, which can mean its assets and income are taxed at the top marginal rate. This is one of the most expensive outcomes in super, so residency is worth planning carefully.
- Can I keep my SMSF if I move overseas?
- Sometimes, with planning. Options can include appointing an enduring power of attorney in Australia, pausing contributions, or restructuring. The right approach depends on how long you will be away, so get advice before leaving.
- How long can I be overseas before residency is a problem?
- There has historically been a temporary absence allowance for central management and control, but the timeframe and related tests have been subject to proposed change. Confirm the current rule with the ATO before relying on a specific period.
