Non-Residents of Australia and SMSFs
Today’s blog is an alert on an issue that we are increasingly seeing in practice.
Australians love real estate and running their own self-managed superannuation funds (“SMSFs”). Since the superannuation regulations with respect to SMSF borrowings were “relaxed” in 2011 with the introduction of limited recourse borrowing arrangements, SMSF borrowing to invest in real estate through a properly structured arrangement has been immensely popular with investors.
However, what happens when individual SMSF trustees or the directors of an SMSF corporate trustee become non-residents of Australia?
This is an issue that is often overlooked when the trustees / directors decide to relocate overseas in order to expand their other business interests.
SMSFs are highly regulated under Australian law and in order for the SMSF to remain a complying super fund and be eligible to apply tax concessions, it needs to be an “Australian super fund” at all times during a financial year.
This generally requires that the fund satisfy the following three key conditions (see s 295-95(2)(a) to (c) of the Income Tax Assessment Act 1997):
- be established in Australia or any asset of the fund be situated in Australia;
- have its central management and control in Australia – this requires that the strategic decision making, review, and management of investments for the benefit of its members, and the performance of high-level duties and activities be undertaken in Australia, although a temporary absence period of up to 2 years is allowed (s 295-95(4)); and
- have no active members or have active members who are Australian residents and hold at least 50% of either 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.
If an SMSF member intends to relocate overseas, strategies to address the residency of the SMSF should be considered as part of their relocation planning. The appropriate strategy would depend on the composition of the assets of the SMSF.
Alternatively, rectification may be required if the two year temporary absence period has lapsed. We can guide you through this process.
A detailed discussion of the taxation of Australian and US retirement super fund contributions, earnings and pensions under the US-Australia Tax Treaty is discussed in Peter Harper’s whitepaper Taxation of Foreign Pensions which is available at: https://asenaadvisors.com/knowledge-centre/whitepapers/taxation-of-foreign-pensions/
For more information, please contact:
Head, US-Australia Tax Desk