Your self-managed super fund and residency requirements

A self-managed super fund (“SMSF”) is a private superannuation fund. That is, you can put your superannuation into it and you can manage it yourself as opposed to putting your superannuation in a retail or industry super fund. Whilst having control over your own super is appealing, there are rules and regulations that govern SMSFs that you should be aware of.

For example, a self-managed super fund needs to be a resident-regulated super fund at all times during the financial year to receive tax concessions and reduce risks involved under the residency test. If a Member of the SMSF (as defined in the trust deed) intends to spend time overseas, outside of Australia for an extended period, it is important that they consider the residency eligibility requirements in order to continue to receive associated tax concessions.

There are three conditions to the residency requirement.

For an self-managed super fund to meet the residency test, it must satisfy all of the following three residency requirements at all times:

  1. The self-managed super fund was established in Australia, or at least one of its assets is located in Australia;
  2. The central management and control of the self-managed super fund is ordinarily in Australia (i.e. SMSF’s strategic decisions are regularly made in Australia);
  3. The self-managed super fund must either have no active Members (those who simply receive contributions or rollovers from the SMSF) or it has active Members (those who make contributions or have contributions made on their behalf) who are Australian residents and who hold at least 50% of either:
  4. the total market value of the fund’s assets attributable to super interests; or
  5. the sum of the amounts that would be payable to active Members if they decide to leave the fund.

In other words, a self-managed super fund should not accept contributions from Members whilst overseas, unless the fund has tax-resident active Members who hold at least 50% of the Member balance.

Alternative appointment to meet the residency requirement.

Generally, where there is a corporate trustee of an self-managed super fund, each Member of the self-managed super fund must be a director of a corporate trustee company.

An exception allows for a Member’s legal personal representative who holds a valid Enduring Power of Attorney ("EPOA”) in respect of the Member to be a trustee of the SMSF in place of the Member.

This may allow a Member of an self-managed super fund who intends to spend time overseas, outside of Australia for an extended period of time to continue to meet the residency requirements set out above.

The relevant section of the Superannuation Industry (Supervision) Act 1993 (“SIS Act”) provides:

Section 17A(3) of the SIS Act

(b)  the legal personal representative of a member of the fund is a trustee of  the fund or a director of a body corporate that is the trustee of the fund, in place of the member, during any period when:-

Explaining the appointment process.

After a Member has signed their EPOA, the Member’s legal personal representative needs to be properly appointed as:-

  1. A director of the corporate trustee pursuant to the Company’s Constitution; and
  2. When the legal personal representative is appointed, the Member appointing the attorney must resign from their appointment as a director of the corporate trustee unless the legal personal representative is appointed as an alternate director; and
  3. At the same time, the legal personal representative takes on all the responsibilities and duties in their personal capacity and does not merely act as an agent for the Members.

Some important factors to consider with your self-managed super fund and residency requirement:

  • If a Member would like their legal personal representative to be appointed as a new director of their corporate trustee company, an Enduring Power of Attorney alone may not be sufficient to establish a formal appointment, the requirements under the Company’s Constitution must also be considered; and
  • A Member’s Enduring Power of Attorney must be reviewed to assess if they include powers that allow an attorney to act in relation to the Member’s superannuation affairs/financial, business and property affairs. If the Member’s Enduring Power of Attorney does not confer the above powers, it will not be appropriate for the purposes of the SIS Act.

It is on this basis that in considering such an alternative appointment, it is important to review the terms of the relevant SMSF trust deed, Company Constitution and EPOA to ensure that each is complimentary of one another to enable both a valid appointment by the Member and confer the appropriate powers to the Member’s attorney.

If you have a self-managed super fund and this has raised any questions, please contact our Commercial lawyers on +61 3 9822 8588 to find out how they can help you.

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