SMSF residency requirement enquiries on the rise

Enquiries from advisers about self-managed super fund (SMSFs) tax residency requirements have been on the rise as many trustees battle with overseas border restrictions, according to BT’s technical team.

Speaking to Money Management, Tim Howard, BT advice technical and regulatory, said SMSF trustees were concerned about maintaining central management of their funds if they chose, or were forced to, stay in another country on a permanent basis.

The Federal Government had extended a range of COVID-19 relief measures for SMSFs to the end of the 2022 financial year, including ensuring an SMSF’s residency status would not be impacted if trustees were stuck in another country.

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To maintain central management beyond the Government’s exemption deadline and to keep getting tax concessions, Howard said these trustees could exercise the Australian Taxation Office’s (ATO) new ‘six-member rule’.

Since 1 July 2021, SMSFs could add up to six members to the fund, which was an increase from four previously.

Meanwhile, according to the ATO, an SMSF would meet its requirements if its central management was temporarily outside of Australia for up to two years.

However, Howard said trustees were considering using their family members for the fund’s fifth and sixth members to keep central management in Australia, so requirements were met.

“For example, adding family members, adding adult children to the super fund to ensure that there’s enough trustees still in Australia that both the trustees here and the trustees overseas can continue to run the fund without being in breach of the second test for residency for SMSFs,” Howard said.

Howard said it came down to an opportunity issue, as utilising the six-member rule could foster concessions that were still available this year from the ATO.

He said the strategy had always been available but that the ATO’s new six-member rule had made it more attractive to more SMSFs.

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