For your Self Managed Superannuation Fund (SMSF) to receive tax concessions, it must be a complying superannuation fund. To be a complying super fund, your SMSF must satisfy the residency test. To satisfy the residency test, your SMSF must meet the definition of an Australian superannuation fund.
What is the residency test?
As a trustee, you must make sure your Fund meets all conditions of the residency test to ensure it qualifies as an Australian superannuation fund.
The residency test has three elements:
- Your Fund was established in Australia, or at least one of the Fund’s assets is located in Australia
- The central management and control of your Fund is ordinarily in Australia
- Your Fund must have no active members or have active members who are Australian residents and who hold at least 50% of
- The total market value of your 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.
When is a fund established in Australia?
An SMSF is established in Australia when you are paid and accept the initial contribution to establish the fund in Australia.
What is ‘the central management and control’ of the fund?
‘The central management and control’ of your SMSF is the strategic and high level decision-making processes of the Fund. These include carrying out duties like:
- Formulating the investment strategy of the Fund
- Reviewing the performance of the Fund’s
These duties are generally performed by you as the trustee of the Fund.
What does ‘ordinarily in Australia’ mean?
We accept the central management and control of your Fund is ordinarily in Australia if the SMSF’s strategic decisions are regularly made, and high level duties and activities are performed, in Australia.
In some situations, a fund’s central management and control may be outside Australia for a period of time. In general, your Fund will still meet the ‘ordinarily’ requirement if its central management and control is temporarily outside Australia for up to two years. If the central management and control of the Fund is permanently outside Australia for any period, you will not meet this requirement. Whether the central management and control of your Fund is ordinarily in Australia is based on the intent at the time and the actual circumstances which eventuated.
When is a member an active member?
A member is considered to be an active member of your SMSF if:
- They are a contributor to the Fund, or
- Contributions to the Fund have been made on their
However, a member is not an active member if contributions have been made to the fund on their behalf and:
- They are not a resident of Australia
- They have ceased to be a contributor, and
- The contributions made on their behalf after they ceased to be an Australian resident were made for the time they were an Australian
What happens if your SMSF doesn’t satisfy the residency rules?
Your SMSF must satisfy the residency rules at all times to be eligible for the tax concessions available to complying superannuation funds. There are tax consequences if your Fund becomes non-complying.
If your fund stops being a complying fund because it does not satisfy the residency rules and therefore cannot meet the definition of an Australian superannuation fund, an amount equal to the market value of the fund’s total assets (less any contributions the fund has received that are not part of the taxable income of the fund) will be included in the fund’s assessable income. This amount is taxed at the highest marginal tax rate.
For every year that the fund remains non-complying, its assessable income is taxed at the highest marginal tax rate.
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