With the increasing globalisation of the workforce, taking a job overseas for an extended period is not uncommon these days. When it comes to your superannuation, there are some key issues for consideration before you leave. For those working in a position that will more than likely see international transfers for extended periods, they are best to steer clear of setting up a self-managed super fund (SMSF).
For those with an existing SMSF, the pitfalls of non-compliance with this area of the law can be significant and great care should be taken before departing Australia to ensure you have appropriately restructured your fund.
There are two key areas that you need to watch out for when handing in your residency.
First, assuming that you are not leaving Australia "temporarily", you need to remove yourself as trustee. The logical question that follows is how do you define temporarily? Some people will cite an absence of greater than two years as the general rule of thumb. However, it you declare that at the time of your departure that you are leaving Australia permanently but return within the two-year period, you will still fail the test.
One of the key things that auditors and the Australian Tax Office take into consideration when looking at the residency of your SMSF is where the central management and control of the SMSF is located while the trustee is overseas. Here, "central management and control" of the SMSF refers to high-level duties, decisions and activities of the fund.
As an example, they will look at the SMSF's investment strategy and in which country decisions about how the investment strategy is managed are made, and who arranges for the ongoing changes to be implemented. If these decisions or actions occur overseas, and the trustees have not departed Australia temporarily, you will have a problem.
A couple of solutions are available for SMSF trustees where there is uncertainty as to whether they will live overseas temporarily. The easiest option is to appoint alternative trustees to effectively step into your shoes. This can be achieved via an enduring power of attorney arrangement that you can arrange through a lawyer. Where there is a corporate trustee in place for your SMSF, extra care needs to be taken and it is advisable to review the constitution with respect to the removal and appointment of trustees.
The more extreme option is to look to convert your SMSF to a so-called small APRA fund and appoint a professional trustee company to take over as trustee. This is obviously more costly and you need to follow the trustee company's requirements in terms of the operation of your fund. If your SMSF has direct property or unlisted investments you will be unlikely to find a professional trustee to take over your SMSF.
The other important area to be aware of when running a SMSF as a non-resident is the inability to make any further contributions unless your fund retains resident members, who effectively control the fund. In the majority of cases this will not be applicable, so best to assume that when you depart permanently, no further contributions, including rollovers, can be received by your SMSF.
Inevitably the restructure of your SMSF will not be a top priority when you sign your next overseas work contract. However, for those with an existing SMSF, the consequences of getting this wrong could result in a large chunk of your retirement savings disappear in penalties.
By Ben Smythe