Self-managed superannuation fund (SMSF) members who contribute to their fund while temporarily working overseas should not be taxed at 47 per cent as a non-complying fund, the SMSF Association believes.
The association called this issue a flaw and urged the Federal Government to address it in its 2016 Federal Budget submission.
SMSF Association chief executive, Andrea Slattery, said “under the current legislation defining an ‘Australian superannuation fund’, it must meet three conditions to be complying, and failure to do so means that it is treated as a non-complying fund”.
“In particular, SMSFs and small Australian Prudential and Regulation Authority (APRA) funds can find themselves in breach of the ‘active member test’ where a non-resident for taxation purposes contributes to the fund,” she said.
“If the fund balance of this contributor/s exceeds 50 per cent of the balances of all the active members of the fund, then it becomes non-complying and loses its tax privileges.”
Slattery said the active member test was an unnecessary source of red tape as it added costs to and reduced the efficiency of the super system.
She said the alternative was for SMSF members to make contributions to large public offer funds while overseas and then to transfer those contributions to their SMSF on return to Australia.
“This is inefficient, especially as transfers from APRA funds to SMSFs can be complex and slow, and increases compliance burden on SMSF members who want to work overseas.”
