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SMSF - Overseas Bank Account

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I am considering setting up an SMSF with the investment strategy of depositing my funds into an overseas  bank account in India. Under Indian Government regulation, the interest is tax free and the funds are fully convertible back into AUD, but are converted from AUD to INR on transfer into the Indian account.

 

The SMSF’s trustees are myself and my partner. The only active member will be myself ie no rollover from my partner.

 

The nature of the bank deposits is a fixed term deposit. Deposit duration being considered range from 1 to 2 years.

 

My questions are -

1) under Indian law, I can only open this type account under the names of the trustees and not in the name of the SMSF. To meet the requirements of both the ATO and Indian bank regulators, will a single purpose Indian bank account styled in the names of the trustees meet the ATO requirements?

2) will the ATO tax liability be determined on maturity of the fixed term deposit or say on an accrual basis? Will withholding tax apply? 

 

JDJW

 

 

 

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Hi @jdjw786,

 

Thanks for your patience whilst we received specialist information regarding your query.

 

Generally, an unavoidable restriction may prevent your SMSF from holding assets using the fund's name.
If assets cannot be held in the fund's name, ownership by the fund must be clearly established. You can do this by executing a caveat, or creating an instrument or declaration of trust to enable the fund to assert its ownership and to assist you with preparing and executing the documentation we suggest you seek legal advice.

 

You can find further information about ownership and protection of assets on our website.


Even though there is no tax payable on the income earned on the term deposit in India, you are required to declare the income on your overseas investment for your Australian held SMSF at the time you are required to lodge the SMSF annual return. You must convert all foreign income, deductions and foreign tax paid into Australian dollars for tax purposes.


We're unable to determine if you use a cash or accrual accounting method. However, if the SMSF only holds a term deposit as the asset, then generally the income would be determined at the time the earnings are received.

 

Hope this helps, JodieH.

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Hi @jdjw786,

 

Welcome to our Community!

 

We're checking information with a specialist area regarding your query and we aim to get back to you by the end of the week.

 

Thanks, JodieH.

Anonymous

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1/ For SMSF the funds assets must be kept totally seperate from the trustees / members assets under the Super Industry (Supervision) Regulations.

 

The assets can not be held in the name of a trustee or a member as an individual. Nor can they be held by a standard employer-sponsor or their associate.

 

Sometimes there may be exceptional reasons for not been able to hold assets in the fund's name, such as unavoidable restriction (such as state law) may prevent your SMSF from holding assets using the fund's name.

If assets cannot be held in the fund's name, ownership by the fund must be clearly established. You can do this by executing a caveat, or creating an instrument or declaration of trust to enable the fund to assert its ownership.

If possible, documents such as sale agreements should be executed in the name of the trustees 'as trustees for' the fund.  As to whether this would apply to your " term deposits under your specific circumstances" is a very grey area, and I would strongly suggest you seek written clarification from the ATO on this issue well before you enter into this type of arrangement.

 

Refer ATO website - Ownership-and-protection-of-assets

 

You must be extremely carefull because getting this wrong can make your fund non-complying!

 

2/ Term deposits that have a term not exceeding 1 year - the interest is accounted for when received. 

 

Term deposits that have a term exceeding 1 year - the interest is returned on an accruals basis and must be accounted for on a periodic basis under the provisions of Division 16 E of the Income Tax Assessment Act (ITAA) 1936 (dependant on the length of term).   This is because a term deposit falls under the category of a " fixed return security ". 

 

This is covered in the ATO Income Tax ruling TR96/3

 

Withholding tax does not apply.

 

Once again I strongly suggest you get written advice from the ATO on this so you get it right.

 

Apply for ATO specific advice Request-for-SMSF-specific-advice

 

or phone the ATO helpline on 13 10 20

Best answer

ATO Certified

Community Support

Replies 0

Hi @jdjw786,

 

Thanks for your patience whilst we received specialist information regarding your query.

 

Generally, an unavoidable restriction may prevent your SMSF from holding assets using the fund's name.
If assets cannot be held in the fund's name, ownership by the fund must be clearly established. You can do this by executing a caveat, or creating an instrument or declaration of trust to enable the fund to assert its ownership and to assist you with preparing and executing the documentation we suggest you seek legal advice.

 

You can find further information about ownership and protection of assets on our website.


Even though there is no tax payable on the income earned on the term deposit in India, you are required to declare the income on your overseas investment for your Australian held SMSF at the time you are required to lodge the SMSF annual return. You must convert all foreign income, deductions and foreign tax paid into Australian dollars for tax purposes.


We're unable to determine if you use a cash or accrual accounting method. However, if the SMSF only holds a term deposit as the asset, then generally the income would be determined at the time the earnings are received.

 

Hope this helps, JodieH.

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