Are Non-Australian Residents Eligible to Hold an SMSF Account?

Is it necessary that the SMSF account holder has to be a resident in Australia? The answer to this question can have significant implications on the compliance and benefits of an SMSF (Self-Managed Superannuation Fund) in Australia.

The Importance of Residency for SMSF Compliance

For an SMSF to be a complying fund and receive tax concessions, it must be an Australian resident fund. This legal requirement stems from the need to maintain certain controls over the superannuation fund and its assets within Australia. SMSFs are at risk of losing their complying status if their members spend excessive periods working overseas. The residency rules stipulate that trustees and the majority of contributing members must reside in Australia.

Control and Management of the Fund

However, it is not strictly necessary for the full control and management of the SMSF to remain in Australia at all times. There are allowances for up to 2 years, and this can be managed through strategic planning and maintaining a strong connection to the fund in Australia. The key requirement is that the fund must be an Australian superannuation fund at all times during the financial year.

Residency Conditions

To be considered an Australian super fund, an SMSF must meet all three of the following residency conditions:

The fund was established in Australia, or at least one of its assets is located in Australia. The fund has no active members, or the members who are Australian residents 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. The fund's central management and control is ordinarily in Australia.

The condition related to the central management and control of the fund is particularly flexible, allowing it to be temporarily outside Australia for up to 2 years, provided it returns to being in Australia permanently. If the fund's central management and control is permanently outside of Australia, it will fail to meet this requirement.

Managing Members During Overseas Periods

If SMSF members are planning to go overseas for an extended period, it is crucial to get professional advice to ensure that the fund remains compliant with the residency rules. Here are some strategies:

If a member becomes a non-resident but still wishes to make or receive contributions, they should do so outside of their SMSF, for example, through a retail or industry super fund. Contributions can then be rolled over to the SMSF when the member returns as an Australian resident.

Consequences of Non-Compliance

If an SMSF fails the residency test, it must either wind up the fund and rollover its funds to a resident regulated super fund or face the consequences of being a non-compliant fund, where its assets and income would be taxed at the highest marginal tax rate.

Conclusion

While SMSF residency requirements can be challenging to navigate, adhering to these rules is crucial for maintaining compliance and maximizing the benefits of an SMSF. Consulting with experienced professionals like Liam Shorte, the SMSF Coach, can help ensure that your SMSF remains in full compliance with the Australian residency rules.