It is well known that Australians love to travel and, although the majority return home, over 420,000 Australians left our shores for the long-term or permanently in the twelve months to August 2016. For those who decide to make another country home, superannuation preservation rules apply to most, but what about those who have a self-managed super fund (SMSF)?
Generally speaking, provided you satisfy the work test, and your objective is to eventually retire in Australia, there are few restrictions to making contributions to your Australian super fund. However, if you are the trustee of your SMSF, the rules are a bit different.
According to the Australian Taxation Office (ATO), SMSF trustees may travel overseas, but when planning an extended stay – more than two years – or a permanent move, trustees may be in breach of SMSF regulations which can incur criminal and financial penalties. In addition, funds that don’t meet SMSF criteria may be taxed at the highest marginal rate.
Members of a SMSF must be either a director or trustee, and whether you’re a trustee or not, you may wish to consider your options for super before you make the big move.
One option gaining favour among expats is Small APRA Funds (SAFs). As the name suggests, these funds are regulated by the Australian Prudential Regulation Authority (APRA) and provide a superannuation environment for funds with up to five members where the fund does not meet the normal definition of a SMSF.
The main feature of SAFs is that it provides a super fund with an independent trustee, ensuring arm’s length governance, although trustee fees do apply. Other benefits of SAFs include:
- the ability to acquire business real property at market value from related parties;
- members not involved in the decision making process are protected under a ‘culpability test’, the test applied to a SAF in place of the compliance test applied to a SMSF. SAFs failing to pass the culpability test generally do not lose tax concessions;
- provision of a member enquiry and complaints mechanism.
You may consider a SAF if you feel a SMSF is not appropriate for you, for example, if you believe you’re too old for the extra responsibility or you have a legal disability.
In addition, the Superannuation Industry Supervision (SIS) Act prohibits ‘disqualified’ persons from acting as trustee, in which case a SAF might be more suitable.
Disqualified persons include:
- an individual who has been convicted of an offence involving dishonest conduct – shoplifting is included in this definition;
- those who are insolvent or under administration.
Australian superannuation is terribly complex so if you are planning an extended overseas trip or a permanent move, whether or not you’re a fund trustee, you must seek professional tax and financial advice.
Making the wrong decision may have consequences that span continents.
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