- An SMSF must meet three residency criteria - being established in Australia (or holding at least one Australian asset), having its “central management and control” ordinarily in Australia, and having at least 50% of its active members (by asset value or entitlements) be Australian residents - in order to retain concessional tax treatment.
- If you move overseas temporarily (generally under two years), your SMSF can remain compliant without major changes, but longer-term absence creates real risk of non-compliance under the residency rules.
- To remain compliant while overseas long-term, you could appoint an Australian-based trustee via enduring power of attorney so someone resident in Australia retains control; otherwise you may need to stop contributing, or consider winding up the SMSF.
- If an SMSF fails the residency test, it may become non-complying, losing favourable tax treatment and potentially triggering higher taxes, forced rollover into a regulated super fund, or attracting penalty units to the value of $330 per unit.
Superannuation is arguably the most 'sticky' of financial categories you’ll need to take care of before you leave Australian shores. It’s not like a bank account where you can just close it down - superannuation stays with you for life… or at least until preservation age. Self-managed super funds (SMSFs) also carry with them an additional subset of considerations. Here's what you need to look at with your SMSF before you move overseas.
If you’re moving overseas but still considered an Australian resident for tax purposes, you’ll need to make sure your SMSF is still ‘Australian’ to receive tax concessions i.e. taxed at 15% in the accumulation phase. Not doing so means your SMSF will be taxed at the highest marginal rate.
See Also: Your Financial Checklist When Moving Overseas
Maintaining Australian ownership of your SMSF
The Australian Tax Office (ATO) has three main points of criteria SMSFs should meet to satisfy its residency conditions:
The fund is established in Australia, or at least one of its assets is located in Australia (for example, a property located in Sydney).
Central management and control of the fund is ‘ordinarily’ in Australia. Your fund will generally still meet this requirement if management/control is overseas for up to two years. Things like updating your investment strategy might be considered exerting management and control.
The fund either has no active members or has active members who are Australian residents who hold at least 50% of either:
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 second point is arguably most pertinent if you are thinking of moving overseas. If you’re moving overseas for a short period under two years - say for a work contract, working holiday or as a huge trip - you likely needn’t worry. However, if you’re thinking of leaving for a longer period, this is where things could get tricky.
Options for your SMSF when moving overseas long-term
Unless you enjoy paying extra tax, you’ll need to do a few things to your SMSF should you move outside of Australia for more than two years. There are a few things to consider.
Australian-based trustee
An SMSF member travelling overseas can maintain eligibility by appointing a trustee to manage their SMSF, if they have ‘enduring power of attorney’ (EPOA). If you’re heading overseas for more than two years, this could be an option but you’ll need to relinquish control to a trusted third party.
To maintain the ‘50% rule' listed above, you’ll likely also need to stop making contributions to your SMSF when you are overseas, if you’re in a two-person fund. The ATO recommends this here. Be aware, also, of providing ‘advice’ or investment direction to your trustee - this could breach the rules, too.
Wind up
If you’re not prepared to hand over your SMSF investment direction to a trustee, you might want to consider winding up the fund entirely. This could especially be the case if your spouse is also in the SMSF and you are both moving overseas. There are generally two options here:
Large fund: You could roll up your investments into a regular, large super fund, but you’ll need to sell or transfer your assets first, such as real estate, shares and other investments. This may also trigger capital gains tax (CGT), but you could avoid this if the fund is paying retirement-phase pensions (i.e. if you’re moving overseas in retirement).
Small APRA fund (SAF): A SAF can have a maximum of four members, and they are run by a licensed trustee. This removes trustee stress, but could be expensive as you’re paying that person to run your fund. You’ll also still run into the ‘active member’ problem, so you’ll need to stop making contributions.
Winding up your SMSF and converting into either one of these options could mean less stress when you’re moving overseas. On top of everything else, the last thing you want to worry about is your retirement fund.
Savings.com.au's two cents
SMSFs and excess paperwork. Name a more iconic duo - I’ll wait. Unfortunately, moving overseas doesn’t rid you of paperwork if you self-manage your super fund - in fact it might just do the opposite! Generally speaking, your SMSF needs to be considered ‘Australian’ to be tax compliant, otherwise you’ll be slugged with penalties.
If you’re moving overseas for two years or less, you might be okay, but any longer than that, and there’s additional hoops you need to jump through. If you’re thinking about dusting off the passport for an extended move overseas, it pays to talk to a solicitor, financial adviser or accountant in regards to your SMSF.
Can I withdraw my super if I leave Australia permanently?
The short answer is yes - but it depends who you are. If you are on a temporary visa, you can apply for a 'Departing Australia superannuation payment' or DASP to the ATO. This is provided:
- You entered Australia on a temporary visa listed under the Migration Act 1958 (excluding subclasses 405 and 410).
- Your visa is no longer in effect.
- You have departed Australia.
- You are not an Australian or New Zealand citizen, or a permanent resident of Australia.
It's much trickier if you are an Australian citizen or permanent resident. You'll generally be required to keep it until preservation age, or if you're moving to New Zealand, move it to a KiwiSaver account.
You might be able to through renouncing your Australian citizenship if you are a dual citizen, but this is an extreme example.
Maintaining Australian residency vs ditching residency
No matter how you skin it, if you’re earning some sort of income in Australia, you’ll need to do a tax return. If you ditch your Australian residency and continue with your SMSF, earning income and capital gains, you’ll likely be hit with the non-residents' tax rate.
The non-residents' tax rate is steeper than it is for residents, and there is no tax-free threshold. Further, if you’re a non-resident and holding onto an SMSF, you might be in a ‘non-complying’ fund, and will have to give up the favourable tax rate of 15% in the accumulation phase. If you’re ceasing to be an Australian resident, it might be easier to wind up your SMSF.
SMSFs and moving to New Zealand
The relationship between Australia and New Zealand generally makes it easier to organise your financials when moving there than it does with other countries. However, unfortunately this is generally not the case for SMSFs - the same restrictions mentioned above still apply.
With regular superannuation, you can generally move your APRA fund’s amount to a New Zealand ‘KiwiSaver’ account. If you’re moving permanently to the land of the long white cloud, you’ll need an Inland Revenue Department (IRD) number to do so, but after that, it’s pretty simple.
Non-complying SMSF penalties
If you’re moving overseas for more than two years and still an active trustee of your SMSF, you run the risk of being non-compliant. This means you could be shifted off the concessional tax rate of 15% in the accumulation phase, plus face any administrative penalties handed down by the ATO.
Penalties are generally handed down in blocks of units, typically between 5-60 units. One unit equals a penalty of $330 at the time of update, and can change periodically.
Say you’re in breach of SMSF compliance and charged ten units, you could be out of pocket $3,330. This must come out of your savings and not out of your SMSF.
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