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SMSF residency conditions

Some people have found their SMSF to be non-complying because they have taken an extended work placement or working holiday overseas, for example. With today’s workforce being more mobile in a global sense, every SMSF member needs to be aware of the ATO’s SMSF residency conditions.
SMSF residency conditions

An extended overseas holiday or work placement could potentially cause a breach of the SMSF residency conditions.


What are the SMSF residency conditions?

A SMSF is an Australian super fund if it meets all three of these residency conditions:

  1. The fund was established in Australia, or at least one of its assets is located in Australia.
    The fund was ‘established in Australia’ if the initial contribution to establish the fund was paid and accepted in Australia.
  2. The central management and control of the fund is ordinarily in Australia.
    This means the SMSF’s strategic decisions are regularly made, and high-level duties and activities are performed, in Australia. It includes formulating the investment strategy of the fund; reviewing the performance of the fund’s investments; formulating a strategy for the prudential management of any reserves; and determining how assets are to be used for member benefits. In general, your fund will still meet this requirement even if its central management and control is temporarily outside Australia for up to two years. If central management and control of the fund is permanently outside Australia for any period, it will not meet this requirement.
  3. 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.

For the purposes of condition three, a member is an ‘active member’ if they are a contributor to the fund or contributions to the fund have been made on their behalf.

What to do if a SMSF member is going overseas?

According to the ATO, if a member of your SMSF becomes a non-resident but still wishes to make or receive SMSF contributions, they should do this outside of their SMSF – through a retail or industry super fund, for example. When the SMSF member retursn as an Australian resident, they can roll over the contributions to their SMSF.

If your SMSF happens to fail the residency test, the ATO recommends you should roll over your funds to a resident-regulated super fund and wind-up the SMSF before the ATO determines the fund to be non-complying.

It’s very important to get professional advice about maintaining the residency status of your SMSF if any SMSF members are planning to go overseas for an extended period. You can discuss your specific circumstances and plans for your SMSF with The SMSF Accountant.

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Diana Morris founded The SMSF Accountant in 2010. Diana is a member of the Institute of Chartered Accountants, holds a current public practice certificate, and is a registered tax agent. Diana has completed a Bachelor of Commerce degree and a Graduate Diploma of Chartered Accounting.