Q. My wife and I have a SMSF. We are both retired.  I am 56 & she is 51. We are wanting to travel extensively overseas, may be up to 5 years and we are going to keep our home & all our bank accounts here in Australia along with keeping our health insurance current. We will travel in a caravan as our intention is to return & reside back here in Australia. 

I understand there are restrictions applicable for SMSF Trustees when leaving Australia but all information I have been able to find relates to people who are still contributing to their fund.  We have our stock brokers who we keep in constant contact with & our real estate management company who look after our rental properties for day to day management. 

My question is do we have to set up a Enduring Power of Attorney or the fact that we will still be Australian residents with all our financial ties still here and will be returning here exclude us from having relinquish our directorship of our SMSF? We do not want to be classified as a non-resident fund and pay hefty penalties.

A. You are very wise to be concerned.  In order for a SMSF to be a complying Superannuation fund, among a number of other criteria, the central management and control of the fund must remain in Australia.  The Tax Commissioner has provided an interpretation of this for trustees.  Essentially it means that strategic and high level decisions and activities of the fund must be made in Australia.

Strategic and high level decisions include formulating the investment strategy and the ongoing monitoring and reviewing of the fund assets and performance.

Administrative activities of the fund are exempt from this requirement. You would have issues even with Stock Brokers and Property Managers managing the assets in Australia as the decision making control still resides with you.

If you as Trustees are not in Australia you are entitled to be temporarily absent for no more than 2 years.  If greater than 2 years, you would need to ensure that you as Trustees only make strategic and high level decisions whilst residing in Australia.  You would also need to demonstrate that your absence albeit longer is still only temporary. You would need to prove that you were factually in Australia when the decisions affecting the fund were made.

If you decide to pursue this course you would still need to appoint an Enduring Power of Attorney to act as Trustee and this should happen prior to departing Australia.

Another critical point to consider is that no contributions are permitted into the fund whilst you are overseas regardless of residency. Given your age, you may wish the flexibility to make contributions to Superannuation up until age 65. You would be able to do this under a conventional Public Offer fund whether resident or not.

You could transfer Trustee responsibilities by transitioning the fund to a small APRA fund then revert to a SMSF on your return.

I would be very careful with your decisions and also the trail of paperwork you create. As Trustees to your SMSF the consequences of having your fund ruled non-complying are very serious indeed.  Penalties can include freezing of assets, penalty tax, fines or jail sentence. Not convinced?  Check out Federal Court Decision AATA 709.


Follow Andrew on Twitter @AndrewHeavenFP.  This article was originally published in The Australian.