Key takeaways
- An SMSF must remain an Australian super fund to keep its tax concessions.
- Moving overseas can breach the central management and control or active member tests.
- Options include appointing an enduring power of attorney, pausing contributions, or restructuring.
- Plan before you leave, because fixing a residency breach afterwards is much harder.
An extended move overseas is one of the most common ways trustees unintentionally put their fund at risk. The danger is not obvious, because nothing visibly changes, but the SMSF residency tests can be breached while you are away, and the consequences are serious.
Why overseas moves are a risk
To keep its concessional tax treatment, an SMSF must remain an Australian super fund, which depends on the residency tests. Two are most affected by going overseas:
- Central management and control. The fund's strategic decisions must ordinarily be made in Australia. A temporary absence is allowed, but a prolonged move means decisions are being made offshore.
- Active member test. If contributions continue for members who are no longer Australian residents, this test can be failed.
Options if you are heading overseas
- Enduring power of attorney. Appointing a trusted person in Australia to act as trustee under an enduring power of attorney can help keep management and control onshore. This needs to be set up correctly.
- Pause contributions. Stopping contributions while you are a non-resident can address the active member test.
- Restructure or roll out. In some cases moving the balance to a large fund while you are away is the simpler answer, with a view to returning later.
Plan before you go
The single most important point is timing. These steps are far easier to put in place before you leave than to retrofit once you are overseas and a test has already been breached. Residency rules have also been subject to proposed change, so confirm the current position with the ATO and get advice well before departure. The cost of getting it wrong, a non-complying fund taxed at the top rate, dwarfs the cost of planning.
Frequently asked questions
- Can I keep my SMSF if I move overseas?
- Sometimes, with planning. Options include appointing an enduring power of attorney in Australia, pausing contributions, or restructuring. The right approach depends on how long you will be away and the fund's makeup, so get advice before leaving.
- What happens if my fund fails the residency tests while I am away?
- 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, which is why planning ahead matters.
- Does pausing contributions help?
- It can address the active member test, which is failed when contributions continue for non-resident members. It does not, on its own, fix the central management and control test, so it is usually one part of a broader plan.
