The SMSF Association is urging the Federal Government to address an anomaly where SMSF members working overseas face punitive penalties for their SMSF if they opt to continue contributing to their fund.
Association CEO/Managing Director Andrea Slattery says members who contribute to their fund while temporarily working overseas can be penalised by having their SMSF taxed at 47% as a non-complying superannuation fund.
“It’s a flaw in the system that we have asked the Federal Government to address in our 2016 Budget submission.
“Under the current legislation defining an ‘Australian superannuation fund’, it must meet three conditions to be complying, and failure to do so means that it is treated as a non-complying fund.
“In particular, SMSFs and small APRA funds can find themselves in breach of the ‘active member test’ where a non-resident for taxation purposes contributes to the fund. If the fund balance of this contributor/s exceeds 50% of the balances of all the active members of fund, then it becomes non-complying and loses its tax privileges.”
Slattery says at a time when an increasing number of Australians work outside the country, it is clearly discriminatory for SMSF members who have been posted overseas and intend to return home not to be able to continue contributing to their fund.
“The reality is that SMSFs members have a barrier to saving for retirement that other funds do not face as well as bearing increased costs to ensure they do not lose the status of being an Australian superannuation fund while the fund’s member/s are overseas.
“The alternative to contravening the ‘active member test’ is for SMSF members to make contributions to a large public offer superannuation fund while overseas and then transferring those contributions to the taxpayer’s SMSF on returning to Australia.
“This is inefficient, especially as transfers from APRA funds to SMSFs can be complex and slow, and increases compliance burden on SMSF members who want to work overseas.
“It’s our belief that the ‘active member test’ does not provide additional integrity to the superannuation system as the establishment and central control and management tests already ensure that only Australian-based superannuation funds can benefit from the tax concessions.
“Instead, the ‘active member test’ is an unnecessary source of red tape – especially for SMSFs – that add costs to and reduces the efficiency of the superannuation system,” she says.
