{"id":4711,"date":"2013-11-25T13:01:46","date_gmt":"2013-11-25T02:01:46","guid":{"rendered":"http:\/\/www.dbalawyers.com.au\/?p=4711"},"modified":"2013-11-25T13:02:39","modified_gmt":"2013-11-25T02:02:39","slug":"international-issues-facing-smsfs-today","status":"publish","type":"post","link":"https:\/\/www.dbalawyers.com.au\/limited-recourse-borrowing-arrangements\/international-issues-facing-smsfs-today\/","title":{"rendered":"International issues facing SMSFs today"},"content":{"rendered":"<p>This article outlines some of the key international issues facing SMSFs today and addresses the practical skills necessary to ensure that these matters are handled effectively.<\/p>\n<h3>SMSF residency<\/h3>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/www.dbalawyers.com.au\/wp-content\/uploads\/2013\/11\/International-issues-facing-SMSFs-today.jpg\" alt=\"International issues facing SMSFs today\" width=\"300\" height=\"200\" class=\"alignright size-full wp-image-4713\" \/><\/p>\n<p>SMSFs are generally not appropriate for people who spend extended time overseas. Such funds can easily lose their complying status and suffer significant tax penalties.<\/p>\n<p><strong><em>Residency requirements<\/em><\/strong><\/p>\n<p>A complying SMSF must be an \u2018Australian superannuation fund\u2019 under s 292-95(2) of the <em>Income Tax Assessment Act 1997<\/em> (Cth)).  Two key criteria that an Australian superannuation fund must satisfy are:<\/p>\n<ul>\n<li>its central management and control (\u2018CM&#038;C\u2019) must ordinarily be in Australia; and<\/li>\n<li>broadly, 50% of its account balances must be held for Australian resident active members (ie, the \u2018active member\u2019 test).<\/li>\n<\/ul>\n<p><strong><em>Requirement 1 \u2014 CM&#038;C<\/em><\/strong><\/p>\n<p>The seminal cases on point define CM&#038;C as being the location where the real business is carried on (<em>De Beers Consolidated Mines Ltd v Howe<\/em> [1906] AC 455, 458), and where the entity\u2019s operations are controlled and directed (<em>Koitaki Para Rubber Estates Limited v FCT<\/em> (1941) 64 CLR 241, 248).<\/p>\n<p>The ATO has broadly agreed with this interpretation, stating that CM&#038;C is determined by looking at a fund\u2019s strategic and high-level decision-making processes and activities, and not its day-to-day operations (TR 2008\/9 [20]-[21]).<\/p>\n<p><strong><em>Requirement 2 \u2014 Active member test<\/em><\/strong><\/p>\n<p>Broadly, an \u2018active member\u2019 is a member in respect of whom contributions\/rollovers are made.  If no contributions\/rollovers are made in respect of members during their overseas stay then this test is not invoked.  <\/p>\n<p>To avoid invoking the active member test, any contributions\/rollovers that are required to be made whilst members are overseas can be made to a public offer fund and then rolled into the SMSF once the members return.  The practical difficulty of stopping contributions, however, is the SMSF\u2019s ability to manage its ongoing expenses and outgoings. Cash flow projections should therefore be undertaken before such a strategy is implemented.<\/p>\n<p><strong><em>Temporary absences<\/em><\/strong><\/p>\n<p>Section 295-95(4) expressly states that a fund\u2019s CM&#038;C will be considered \u2018ordinarily in Australia\u2019 even if it is temporarily outside Australia for a period of no more than two years.  Therefore, there may be scope for SMSF members to be overseas temporarily without jeopardizing the fund\u2019s complying status. However, prior planning, even for those departing temporarily, is prudent to ensure the two year rule is not overlooked. <\/p>\n<p><strong><em>Practical strategies to manage CM&#038;C<\/em><\/strong><\/p>\n<p>The most common strategy for SMSF members heading off overseas is to \u2018hand over\u2019 control of their SMSF to one or more \u2018trusted\u2019 persons.  This \u2018hand over\u2019 is initially documented via executing an enduring power of attorney (\u2018EPoA\u2019) in favour of each \u2018trusted\u2019 person.  The member then resigns as an SMSF trustee (or director of the corporate trustee) and the nominated attorney is appointed as trustee (or director) in their place. The nominated attorneys must then undertake the SMSF\u2019s strategic decisions.<\/p>\n<p>Members should only appoint people they feel comfortable will act in their best interests as their attorneys. <\/p>\n<p>One way to protect member interests is to have a specific EPoA drafted that only provides the attorney with the ability to act in matters relating to the specific SMSF. The EPoA can be further drafted such that the attorney is only given the power to make \u2018member\u2019 decisions after obtaining the member\u2019s prior consent. <\/p>\n<p><strong><em>Tips and traps<\/em><\/strong><\/p>\n<p>Some common tips and traps associated with the residency requirements are:<\/p>\n<ul>\n<li>although an attorney is appointed, the attorney merely acts as a \u2018puppet\u2019 of the members;<\/li>\n<li>members make contributions without realising that they are doing so (eg, payment of an SMSF liability, transferring listed shares to an SMSF, etc); and<\/li>\n<li>advisers do not realise that the ATO does not have any discretion to determine that the SMSF is a complying superannuation fund, regardless of failing the residency rules.<\/li>\n<\/ul>\n<h3>Other considerations<\/h3>\n<p><strong><em>Succession planning<\/em><\/strong><\/p>\n<p>The rules and procedures relating to estate, succession and tax laws in other countries may need to be examined when reviewing a client\u2019s estate planning. This is especially the case where clients have acquired assets in overseas countries or have family members who have relocated overseas.<\/p>\n<p><strong><em>International property investments<\/em><\/strong><\/p>\n<p>SMSF trustees can invest in overseas property.  However, compliance traps and practical considerations need to be first considered, as outlined below:<\/p>\n<ul>\n<li>the in-house assets rules can easily be unwittingly invoked if the SMSF does not acquire the real estate directly, but rather through a related company in the overseas country;<\/li>\n<li>inflated transaction costs may apply, including costs in sourcing and maintaining the property and costs for an overseas lawyer to complete the conveyance and provide advice on ownership restrictions, etc; and<\/li>\n<li>where limited recourse borrowing arrangements (\u2018LRBA\u2019) are undertaken, it is unlikely that overseas lenders, mortgage brokers and conveyancers will understand the nuances of the transaction, adding another layer of risk.<\/li>\n<\/ul>\n<p>We recommend that expert advice be obtained both in Australia and the overseas jurisdiction before SMSF trustees buy overseas property, especially via an LRBA.  <\/p>\n<h3>Conclusion<\/h3>\n<p>Advisers need to ensure that they consider the global implications when advising clients and that they are equipped to spot and appropriately handle any associated issues. <\/p>\n<p class=\"aligncenter\">* * *<\/p>\n<p>This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.<\/p>\n<div class=\"printfriendly pf-button  pf-alignleft\"><a href=\"https:\/\/www.dbalawyers.com.au\/limited-recourse-borrowing-arrangements\/international-issues-facing-smsfs-today\/?pfstyle=wp\" rel=\"nofollow\"  title=\"Printer Friendly, PDF & Email\"><img decoding=\"async\" class=\"pf-button-img\" src=\"https:\/\/cdn.printfriendly.com\/buttons\/printfriendly-pdf-button.png\" alt=\"Print Friendly, PDF & Email\" style=\"width: 112px;height: 24px;\"  \/><\/a><\/div>\n","protected":false},"excerpt":{"rendered":"<p>This article outlines some of the key international issues facing SMSFs today and addresses the practical skills necessary to ensure that these matters are handled effectively. SMSF residency SMSFs are generally not appropriate for people who spend extended time overseas. Such funds can easily lose their complying status and suffer significant tax penalties. Residency requirements [<a class=\"read-more\" href=\"https:\/\/www.dbalawyers.com.au\/limited-recourse-borrowing-arrangements\/international-issues-facing-smsfs-today\/\">read more<\/a>]<\/p>\n","protected":false},"author":22,"featured_media":4713,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[31,33,35,37],"tags":[],"ppma_author":[138],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v22.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>International issues facing SMSFs today | Leading SMSF Law Firm<\/title>\n<meta name=\"description\" content=\"The world is becoming more global and SMSF advisers need to make sure they are equipped to spot and appropriately handle any associated issues.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.dbalawyers.com.au\/limited-recourse-borrowing-arrangements\/international-issues-facing-smsfs-today\/\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Daniel Butler\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.dbalawyers.com.au\/limited-recourse-borrowing-arrangements\/international-issues-facing-smsfs-today\/\",\"url\":\"https:\/\/www.dbalawyers.com.au\/limited-recourse-borrowing-arrangements\/international-issues-facing-smsfs-today\/\",\"name\":\"International issues facing SMSFs today | Leading SMSF Law Firm\",\"isPartOf\":{\"@id\":\"https:\/\/www.dbalawyers.com.au\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.dbalawyers.com.au\/limited-recourse-borrowing-arrangements\/international-issues-facing-smsfs-today\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.dbalawyers.com.au\/limited-recourse-borrowing-arrangements\/international-issues-facing-smsfs-today\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.dbalawyers.com.au\/wp-content\/uploads\/2013\/11\/International-issues-facing-SMSFs-today.jpg\",\"datePublished\":\"2013-11-25T02:01:46+00:00\",\"dateModified\":\"2013-11-25T02:02:39+00:00\",\"author\":{\"@id\":\"https:\/\/www.dbalawyers.com.au\/#\/schema\/person\/51e17c75fbc6987d17bcc7c68f6879c3\"},\"description\":\"The world is becoming more global and SMSF advisers need to make sure they are equipped to spot and appropriately handle any associated issues.\",\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.dbalawyers.com.au\/limited-recourse-borrowing-arrangements\/international-issues-facing-smsfs-today\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.dbalawyers.com.au\/limited-recourse-borrowing-arrangements\/international-issues-facing-smsfs-today\/#primaryimage\",\"url\":\"https:\/\/www.dbalawyers.com.au\/wp-content\/uploads\/2013\/11\/International-issues-facing-SMSFs-today.jpg\",\"contentUrl\":\"https:\/\/www.dbalawyers.com.au\/wp-content\/uploads\/2013\/11\/International-issues-facing-SMSFs-today.jpg\",\"width\":300,\"height\":200},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.dbalawyers.com.au\/#website\",\"url\":\"https:\/\/www.dbalawyers.com.au\/\",\"name\":\"DBA Lawyers\",\"description\":\"Leading SMSF Law Firm\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.dbalawyers.com.au\/?s={search_term_string}\"},\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"Person\",\"@id\":\"https:\/\/www.dbalawyers.com.au\/#\/schema\/person\/51e17c75fbc6987d17bcc7c68f6879c3\",\"name\":\"Daniel Butler\",\"image\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.dbalawyers.com.au\/#\/schema\/person\/image\/2169bc3da061d4bd5f02e1a67c0df79e\",\"url\":\"https:\/\/secure.gravatar.com\/avatar\/d78c2b0f9e09daf27cca87ab8a52fe85?s=96&d=mm&r=g\",\"contentUrl\":\"https:\/\/secure.gravatar.com\/avatar\/d78c2b0f9e09daf27cca87ab8a52fe85?s=96&d=mm&r=g\",\"caption\":\"Daniel Butler\"},\"description\":\"Dan is recognised as one of Australia's leading SMSF lawyers complemented by his taxation and commercial expertise. 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He has worked predominantly in the fields of tax and superannuation over the past 36 years, is a qualified Chartered Tax Adviser, Chartered Accountant and has an MBA from the University of Melbourne. Dan is a regular seminar presenter on tax and SMSF topics and has published extensively in these areas. Dan regularly presents for the major professional bodies including the SMSF Association, The Tax Institute, Chartered Accountants Australia and New Zealand and DBA Network. Dan is a member of the ATO's Super &amp; Employment Change Committee, The Tax Institute's National Superannuation Committee, the Law Institute of Victoria's Tax Committee and is involved with a number of other tax and SMSF committees. Dan presents on the subject of Taxation of Superannuation at the University of Melbourne's Master of Laws\/Tax program. 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Dan regularly presents for the major professional bodies including the SMSF Association, The Tax Institute, Chartered Accountants Australia and New Zealand and DBA Network.\r\nDan is a member of the ATO's Super &amp; Employment Change Committee, The Tax Institute's National Superannuation Committee, the Law Institute of Victoria's Tax Committee and is involved with a number of other tax and SMSF committees. Dan presents on the subject of Taxation of Superannuation at the University of Melbourne's Master of Laws\/Tax program. Dan is also a Specialist SMSF Advisor\u2122."}],"_links":{"self":[{"href":"https:\/\/www.dbalawyers.com.au\/wp-json\/wp\/v2\/posts\/4711"}],"collection":[{"href":"https:\/\/www.dbalawyers.com.au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.dbalawyers.com.au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.dbalawyers.com.au\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/www.dbalawyers.com.au\/wp-json\/wp\/v2\/comments?post=4711"}],"version-history":[{"count":0,"href":"https:\/\/www.dbalawyers.com.au\/wp-json\/wp\/v2\/posts\/4711\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.dbalawyers.com.au\/wp-json\/wp\/v2\/media\/4713"}],"wp:attachment":[{"href":"https:\/\/www.dbalawyers.com.au\/wp-json\/wp\/v2\/media?parent=4711"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.dbalawyers.com.au\/wp-json\/wp\/v2\/categories?post=4711"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.dbalawyers.com.au\/wp-json\/wp\/v2\/tags?post=4711"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/www.dbalawyers.com.au\/wp-json\/wp\/v2\/ppma_author?post=4711"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}