The SMSF Association has urged the Government to lift restrictions that compel Australians living overseas to switch from their self-managed superannuation funds (SMSFs) to Australian Prudential Regulatory Authority (APRA)-regulated funds while abroad.
Under the Income Tax Assessment Act, super funds into which a non-resident pays more than 50 per cent of the contributions is not considered a complying Australian fund for tax purposes.
John Maroney, SMSF Association chief executive said that this ‘active member’ provision meant that SMSFs who contribute to their fund while overseas face penalties and risk having it taxed as a non-complying fund.
As a result, he said that SMSF members living abroad were being forced to open APRA-regulated funds while overseas and then switch back to their SMSF upon their return, which was “a costly and cumbersome exercise.”
Maroney called on the Government to dispense with the ‘active member’ test when determining whether a fund was Australian for tax purposes.
“Residency of the 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,” he said.
“Removing the ‘active member’ test will ensure that SMSF members who are working overseas can still contribute to their fund where their SMSF balance exceeds 50 per cent of the fund’s assets.”
Maroney said that the ‘active member’ rule disproportionately impacted SMSFs, as the scale and membership size of large APRA-regulated funds made it “virtually impossible” for them to breach the 50 per cent test.
