There have been many articles written about how an SMSF can maintain its residency status when the members of the SMSF go overseas. However, perhaps not many SMSF trustees are aware of the tax implications of going overseas for a period and then returning to Australia. For an SMSF to maintain its complying status and receive concessional tax treatment, the SMSF 

must be a resident regulated superannuation fund at all times throughout the financial year.

The three tests that must be met for an SMSF to maintain its residency status are:

Test 1: The SMSF must be established in Australia or have any of its assets situated in Australia.  This test is easy to meet if the initial contribution was received in the SMSF’s bank account in Australia or if at least one of the assets of the SMSF is in Australia in the financial year the residency status is tested.

Test 2: The central management and control of the SMSF must ordinarily be in Australia. If the person who makes the high level decisions for the SMSF is overseas, as long as the period of absence is temporary, the SMSF will satisfy this test. If this person goes overseas for an indefinite period, then the SMSF will fail this test. Take care with this test as many people believe there is a two year threshold. To be ‘ordinarily’ in Australia whilst being overseas will depend on the trustee’s intent; the substance of their absence; and whether the duration is ‘temporary’. The decision surrounding what is temporary involves consideration of the circumstances of each particular situation.

Test 3: The SMSF does not have any ‘active members’, or if it does have active members, then at least 50% of the superannuation account balance in the SMSF belongs to ‘resident active members’. An active member is one who contributes to their SMSF or has contributions made for them on their behalf (e.g. an employer). So if SMSF members go overseas, it is best they do not make any contributions. If they do, then they need to make sure that their total superannuation balance in the SMSF is not more than 50% of the total superannuation balance of all active members in the SMSF.

SMSF trustees often get this test wrong by measuring the balance in the SMSF of resident members against the balance of non-resident members. It is not the balance of all members, it is the balance of all active members that is measured for this test. To ensure that at least 50% of superannuation balance belongs to resident active members, it will be necessary for each resident member to be classified as an active member by having contributions made for them. If the superannuation balance of resident active members is less than 50% of the total balance of all active members, or resident members with at least 50% of the total balance fail to make a contribution while a non-resident does, the active member test would not be satisfied.

Failing the residency test

Once an SMSF fails the residency test it becomes a non-complying superannuation fund. Then, all of its assets accumulated over the years of its existence, less any member contributions (where no tax deduction has been claimed) plus earnings on investments received in the financial year that the SMSF becomes non-compliant, are taxed at a flat rate of 45%. Each year the SMSF remains a non-resident (non-complying) fund, the income will also be taxed at a flat 45%.

Another thing that people may not be aware of is what happens when the SMSF members return to Australia, and their SMSF changes its status from a non-resident SMSF back to a resident SMSF. In such case, the above formula takes effect again and all of the fund’s assets, less any members’ contributions to the non-resident SMSF, are included in the assessable income of the SMSF in the year it becomes a resident SMSF. The SMSF is taxed at either 45% (if the SMSF members return to Australia during the financial year) or 15% (if they return to Australia for the full financial year). Each year the SMSF remains a resident (complying) SMSF it will continue to receive the concessional tax treatment of 15%.

If you don’t seek advice on your SMSF before you depart it can be quite detrimental to your life savings if you go overseas and later return to Australia. You could end up paying 45% tax on your SMSF’s accumulated assets twice.

By Monica Rule. She worked for the Australian Taxation Office for 28 years and is the author of  The Self Managed Super Handbook – Superannuation Law for Self Managed Superannuation Fund in Plain English.

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It will also make it easier for you to meet your compliance obligations, and potentially save you time and money in the future.

Reason to keep good records: There are a number of reasons why you should keep good records of all your business transactions. Good record keeping:

• makes it easier for you to meet your compliance obligations
• makes it easier for you to understand how your business is really performing
• assist you making effective business decisions, such as cost management, cashflow management, capital injection and/or perhaps selling your business.

Keeping record of income and expenses with supporting documents (receipts, contract, bank statements etc.) is a legal requirement. By law you must keep business records for at least five years, either on paper or electronically. They must be in English or in a form that can easily be converted.

If you don’t keep the right tax records, you can incur penalties. Poor record keeping is also one of the main reasons many small businesses fail. According to Australian Bureau of Statistics data on average 44 small businesses shut their business every day in Australia.

Record Keeping for Business

Income Tax & BAS records: You must keep records of all your sales (including CASH sales) and expenses to prepare your business activity statements (BAS) and annual income tax return, and to meet other tax obligations. You also need to keep bank records.

Records of all business expenses, including cash purchases. Records could include receipts, invoices including tax invoices, cheque book receipts, credit card vouchers and diaries to record small cash expenses. Records showing how you worked out any private use of something you purchased.

To be eligible to claim GST on purchases, you must need to have tax invoices from your suppliers which clearly state GST component of the purchase.

Year-end records: These include lists of debtors & creditors, Depreciation schedule, stocktake sheets (inventory on hand) and capital gains tax records.

Goods and services tax (GST) records: The main GST records you need to keep are tax invoices from your suppliers. Remember, you must need a tax invoice to claim GST credits. You must keep any other document that records any adjustments, a decision or a calculation made for GST purposes.

Employees and contractors records: If you have employees or contractors, you will need to keep:

• tax file number (TFN) declaration forms or withholding declaration forms
• records of wages, allowances and other payments you make to them
• superannuation records, including payments you make and records that show you have met your superannuation obligations
• records of fringe benefits you provided
• copies of any contracts you have with contractors.

Fuel tax records: If you intend to claim fuel tax credits for your business, you must keep records that show that you:

• acquired the fuel
• used the fuel in your business
• applied the correct rate when calculating how much you could claim.

You must also keep records that show your business is carrying on activities that are eligible for fuel tax credits. If you are claiming fuel tax credits of $300 or less in a financial year, you do not have to keep records of fuel purchases.

Other records you may need to keep: As well as general records, you may also need to keep other records depending on your tax obligations or the type of your business transactions. To help you work out the record keeping needs for your business contact ATO or a tax professional

By law you must keep these records for at least five years, either on paper or electronically. They must be in English or in a form that can easily be converted.

Free ATO assistance:

To make it as easy as possible for you to comply with your tax obligations, the ATO can arrange an assistance visit. Visits are confidential and conducted by tax officers at your place of business or preferred location. A tax officer can work through any issues you may have and discuss specific tax information of interest to you.

A visit can take any time between half an hour to a full day. It all depends on what you need.

Information you share with ATO during a visit will not be told to anyone else, not even other people in the ATO.

To arrange a visit:

• phone 13 28 66 between 8.00am and 6.00pm, Monday to Friday
• online booking form at www.ato.gov.au/assistancevisit

Using an Accountant

Using professional help is always advised; you may want to get a registered tax or BAS agent to help you with your tax obligations.

It’s important to choose a registered tax or BAS agent. Using a registered agent means they are qualified and experienced with tax. Only a registered agent can legally charge you a fee.

You can check that your agent is registered by looking at the Tax Practitioners Board’s agent register on www.tpb.gov.au or by calling 1300 362 829.

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