NON RESIDENT SUPERANNUATION FUND |
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To be a resident superannuation fund, the fund must satisfy the following conditions at all times during the year:
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the fund is a provident, benefit, superannuation or retirement fund; |
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the fund was established in Australia or any asset of the fund is situated in Australia; |
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the central management and control of the fund is in Australia; and |
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the accumulated entitlements of non-resident active members must be less than 50% of the total accumulated entitlements of active members. |
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ACTIVE MEMBER |
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An active member is a member who has either made contributions to the fund or had contributions made on his/her behalf.
From 1 October 2001 a person will not be an active member for a particular year, if in that year:
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he/she ceases to be a resident of Australia; and |
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he/she has ceased to contribute to the fund after ceasing to be a resident of Australia; and |
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no contributions have been made to the fund on behalf of that person after he/she ceased to be a resident of Australia unless those contributions relate to a period prior to the person ceasing to be a resident of Australia. |
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CENTRAL MANAGEMENT AND CONTROL IN AUSTRALIA |
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Central management and control of the fund is carried out by the trustee of the fund.
The place of central management and control will be the place where the trustees, or the directors of the trustee company, meet to conduct the operations of the fund.
From 1 October 2001, if the central management and control of the fund will be in Australia if the following conditions are satisfied:
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the trustees/directors of the trustee company are temporarily overseas; |
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central management and control would have been in Australia had the trustees/directors of the trustee company been in Australia; and |
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the trustees/directors of the trustee company are overseas for a continuous period of less than two years. |
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This means that provided a person who controls a self managed fund is overseas for a period of less than two years the fund will pass this test and continue to be treated as a resident superannuation fund.
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SUMMARY |
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Where a person who is a member of a self managed superannuation fund (and therefore also a trustee/director of the trustee company of the fund) moves overseas then the fund will continue to be a resident fund provided the following conditions are satisfied:
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the person is overseas for a period of less than 2 years; |
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the fund does not accept any contributions by on behalf of the person after he ceases to be a resident of Australia (for tax purposes). Note that contributions made in the period of non-residency that relate to the period of residency do not make the member an active member. |
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WHAT ARE THE CONSEQUENCES OF BECOMING A NON-RESIDENT FUND? |
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If a fund is a non-resident fund at any time during the year of income, it will be a non-complying fund.
The most obvious implication of becoming a non-complying fund is that the fund will be subject to a tax rate of 47% on its taxable income.
However, if a fund changes from being a complying to a non-complying superannuation fund then it will need to include the market value of its assets at the start of the year of income (less undeducted contributions up to the start of the year of income) in its assessable income. This amount will be taxed at 47%.
This is a significant penalty. A complying fund should therefore avoid becoming a non-complying fund.
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OPTIONS |
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If the members are transferred overseas and as a result their self managed fund will become a non-resident fund then the best way for a fund to remain a complying fund is for it to become a small APRA fund. This would require it to appoint an "approved trustee" as the trustee of the fund.
There are no CGT implications in replacing the trustee of a fund.
The ATO will need to be advised that the fund has converted from being a self managed superannuation fund to a small APRA fund.
When the members return to Australia they can replace the trustee and resume their role as trustees of the fund. They will need to advise APRA/ATO that the fund is once again a self managed fund.
If the members have become non-residents of Australia for tax purposes while they are overseas then it is still important that no contributions are made to the fund by them or on their behalf. This would make them active members of the fund and may result in the fund breaching the "active member test" (namely at least 50% of the accumulated entitlements of active members of the fund must be held by residents).
Therefore, if no contributions are made to the fund during the years the members are non-residents of Australia, the active member test will not apply.
Another alternative may be to transfer the entitlements of the overseas members to a public offer fund. The problem with this solution is that a CGT liability will arise to the fund from the transfer of its assets.
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CASE STUDY |
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David and Kathy are trustees of their own self managed superannuation fund.
David has been transferred to Singapore for 12 months. Kathy will accompany him.
The fund will remain a complying fund as David and Kathy will not be overseas for more than two years, provided the fund has not accepted any contributions from them or on their behalf during their absence.
If however David and Kathy do stay overseas for longer than 2 years, their fund will become a non- resident fund. It will become a non complying fund. It will need to include in its assessable income the value of the assets of the fund (less undeducted contributions). This amount will be taxed at 47%.
If David and Kathy resign as trustees and appoint an "approved trustee" then the fund will continue to be a complying fund. This is because central management and control of the fund will be in Australia. The fund will become a small APRA fund. The ATO and APRA will need to be advised of the change.
David and Kathy can resume their role as trustees of the fund when they return to Australia. APRA and the ATO will need to be advised that the fund is once again a self managed superannuation fund.
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More about Superannuation - temporary residents departing from the ATO's website
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