Will Keeping your Self-Managed Super Turn into a Nightmare?


Did you follow all the advice about putting money away for your retirement? Having consulted your accountant did you decide to setup a Self-Managed Super Fund (SMSF)?

If you did and then you moved overseas for a few years, you urgently need to seek advice, as your SMSF may become non-complying and this could be a very expensive mistake.

How does a Self-Managed Superannuation Fund keep its Complying Status?

Having set up your own self-managed super fund (SMSF), possibly with your Partner, and then moved overseas for an extended period, you are at risk of your SMSF failing the residency test and becoming non-compliant.

Non-compliant SMSF’s can be taxed at the highest marginal tax rate on the market value of the fund.

How Does a SMSF pass the Compliance Tests?

For SMSF to remain “complying” it needs to meet three tests at all times. Your SMSF must

  1. be established in Australia or hold assets in Australia
  2. have Central management and control ordinarily in Australia
  3. satisfy the “active member” test
Test 1: Is the SMSF Established in or does it Hold its Assets in Australia

If a SMSF is established in Australia it will always satisfy this test.

Test 2: Is the Central Management and Control of the SMSF Ordinarily in Australia

This test considers where the strategic, investment related, and main decisions concerning the Self-Managed Super Fund are ordinarily made. These decisions include:

  • developing the investment strategy for the SMSF
  • reviewing the performance and updating the investment strategy of the SMSF

The day to day activities of the SMSF do not constitute central management and control as these are not of a “strategic” or “high-level” nature.

However, as in most cases for Self-Managed Super Funds, the trustees of the fund are often the same as the members of the fund, when the trustee / member moves overseas for an extended period then the central management and control of the fund would no longer ordinarily be in Australia and your SMSF will fail this test.

Test 3: Does the SMSF pass the Active Member Test

If the fund has any non-resident (for Australian tax purposes) members, they cannot be an active member of the fund if their balance makes up more than half of the total balance of all active members.

To pass this test, at least one of the following must be the case:

  • all members of the SMSF are Australian tax residents
  • if any member of the fund is a non-resident and an active member, their share must be less than 50% of the total value of the SMSF
What are the consequences of having a non-complying SMSF?

If your SMSF stops being a complying Super by failing to satisfy the tests discussed above, an amount equal to the market value of the SMSF’s total assets (less any contributions the SMSF has received) may be included in the SMSF’s assessable income. This amount will be taxed at the top marginal rate.

To make matters worse, every year the fund remains non-complying its assessable income is taxed at the highest marginal rate.

What can you do about this?

Your options if you find yourself in this situation include winding up your SMSF and rolling the money into either a public superannuation fund, or converting the fund to an APRA fund.

If, in common with many members of SMSF’s, your SMSF has invested in property, the former solutions may not be particularly attractive.  It may be possible to continue your SMSF (and pass Test 2) by appointing your enduring Power of Attorney as the Trustee of your SMSF.

Given the complexities of superannuation legislation and the changes introduced almost every year in the annual Budget, it is important that you seek advice about how you can continue to provide for your retirement without your Super suffering punitive levels of taxation.

So, what now?

It is important that you understand these issues and how they may affect you, to ensure you plan for the retirement you want.

It is vital that you seek advice from a fully qualified specialist.

AAM Wealth Solutions can provide you with a detailed Australian Super Audit, which will consider these issues in light of your needs, goals and circumstances and make a recommendation showing the right course of action for you to achieve the best retirement outcome.

Why you should have an AAM Wealth Solutions Australian Super Audit now

Every AAM Australian Super Audit is checked by Ian Black, a Chartered Financial Planner with over 20 years of experience in the provision of retirement planning advice.

You will always receive a full recommendation on your Optimum Super, whether that is the Super(s) you already have or an alternative.

An AAM Australian Super Audit will put you in an informed position, able to make informed choices about your Optimum Super and how best to secure your perfect retirement.

Contact your AAM Financial Planner now to arrange your Australian Super Audit or email wealthsolutions@aam-advisory.com


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