The SMSF Association has called for the active member test to be excluded from the residency requirement for a superannuation fund to qualify for concessional tax treatment.
SMSF Association CEO John Maroney said the super fund residency test effectively compels self-managed super fund (SMSF) members who are temporarily living overseas to switch to an APRA-regulated fund while they are outside the country. Mr Maroney said the definition of an “Australian superannuation fund” in s 295-95 of the ITAA 1997 means SMSF members who continue contributing to their fund while overseas face penalties, as well as having it taxed as a non-complying fund at 47%.
There are currently 3 elements to the residency test that a fund must satisfy to be treated as an “Australian superannuation fund” – (i) it must be established in Australia; (ii) central management and control of the fund is in Australia; and (iii) the “active member” test relating to contributions made to the fund by non-resident active members for taxation purposes (they can’t exceed 50%): Ruling TR 2008/9. If a fund fails to satisfy any one of the 3 tests, it will not be an Australian superannuation fund.
The SMSF Association argues that removing the active member test in s 295-95(2)(c) would ensure that SMSF members who are working overseas could still contribute to their fund where their SMSF balance exceeds 50% of the fund’s assets. Rather, the Association believes that the residency of a super fund should be determined on the same principles as all other entities for income tax purposes, that is, the place of establishment and the location of the management and control of the entity.