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Non tax residents setting up SMSF

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Hi - we are considering setting up a SMSF with 2 trustees (my husband & I). We would like to invest in a farm and lease the farm to our trust for market rates to keep it at arms length and on a business level. Some complications are - we are relocating from Australia shortly for work and will be classed as non tax residents of Australia for an indefinite period. Is there any problems with non tax residents having a SMSF in Australia - my husband is an Australian citizen and I am a New Zealand citizen. Thanks in advance
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Anonymous

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You need to be very careful with this because if the fund does not meet special residency tests then it will become non-complying and the taxation consequenses can be catastrophic, for example your fund will be taxed at the highest individual marginal rates of tax and you will be forced to transfer assets to a retail fund, which you can not do with property so that means your fund would have to sell the property and the resulting funds transfered to a retail fund (unless you meet strict conditions of release) , and this in turn gives rise to captial gains tax issues for the fund, and then you also have to wind the fund up.  Furthermore, it makes no difference if a member of the fund is an Australian citizen or not.

 

There are even court cases on this issue which demonstrate the dire consquences of the fund failing the residency test, have a read of the following AAT case. 

 

CBNP Superannuation Fund and Commissioner of Taxation [2009] AATA 709

There was a self managed superannuation fund with only one member, Ms M. Ms M was also the only director of the fund’s corporate trustee. Ms M ceased to be a resident of Australia for income tax purposes, moving to New Zealand. Ms M installed her brother, Mr M, as a fellow director of the fund’s corporate trustee. Nevertheless, all decisions in relation to the management and control of the fund from then onwards were made by Ms M in New Zealand.

 

The Commissioner of Tax audited the fund, and realised that the fund failed the residency rules. The Commissioner issued a notice of non-compliance. The fund’s total assets were approximately $273,768. The notice of non-compliance resulted in a tax bill for the fund of approximately $146,000.


The fund appealed the notice of non-compliance to the Administrative Appeals Tribunal. The Tribunal found that it was ‘most unfortunate that Ms M will suffer a significant reduction in her self-managed superannuation fund benefits. The Tribunal sympathises with her and the position in which she finds herself, but has no greater power than the respondent under the SIS Act to assist her.’ Accordingly, the tax liability stood.

 

If you are considering doing this then as per the ATO website, you need to get some professional advice.  The alternative is to ask the ATO for SMSF specific advice, which will also give you the opportunity to discuss the issue with the ATO officer that will give you the written response.

 

Either way I suggest you do not anything until you have recieved advice and have it clear in your own mind what the consequences are if the fund becomes non-complying simply because it fails the residency rules.

 

ATO general super line 13 28 61

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Best answer

Anonymous

Replies 0

You need to be very careful with this because if the fund does not meet special residency tests then it will become non-complying and the taxation consequenses can be catastrophic, for example your fund will be taxed at the highest individual marginal rates of tax and you will be forced to transfer assets to a retail fund, which you can not do with property so that means your fund would have to sell the property and the resulting funds transfered to a retail fund (unless you meet strict conditions of release) , and this in turn gives rise to captial gains tax issues for the fund, and then you also have to wind the fund up.  Furthermore, it makes no difference if a member of the fund is an Australian citizen or not.

 

There are even court cases on this issue which demonstrate the dire consquences of the fund failing the residency test, have a read of the following AAT case. 

 

CBNP Superannuation Fund and Commissioner of Taxation [2009] AATA 709

There was a self managed superannuation fund with only one member, Ms M. Ms M was also the only director of the fund’s corporate trustee. Ms M ceased to be a resident of Australia for income tax purposes, moving to New Zealand. Ms M installed her brother, Mr M, as a fellow director of the fund’s corporate trustee. Nevertheless, all decisions in relation to the management and control of the fund from then onwards were made by Ms M in New Zealand.

 

The Commissioner of Tax audited the fund, and realised that the fund failed the residency rules. The Commissioner issued a notice of non-compliance. The fund’s total assets were approximately $273,768. The notice of non-compliance resulted in a tax bill for the fund of approximately $146,000.


The fund appealed the notice of non-compliance to the Administrative Appeals Tribunal. The Tribunal found that it was ‘most unfortunate that Ms M will suffer a significant reduction in her self-managed superannuation fund benefits. The Tribunal sympathises with her and the position in which she finds herself, but has no greater power than the respondent under the SIS Act to assist her.’ Accordingly, the tax liability stood.

 

If you are considering doing this then as per the ATO website, you need to get some professional advice.  The alternative is to ask the ATO for SMSF specific advice, which will also give you the opportunity to discuss the issue with the ATO officer that will give you the written response.

 

Either way I suggest you do not anything until you have recieved advice and have it clear in your own mind what the consequences are if the fund becomes non-complying simply because it fails the residency rules.

 

ATO general super line 13 28 61

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