Maintaining an SMSF as a resident fund is an essential element of the fund's complying status.
A recent case highlights the drastic effects of a non-complying fund assessment.
If a member of an SMSF is outside Australia for an extended period, then the SMSF's trustees (or the directors of the trustee) and the SMSF's advisors need to plan carefully.Nicole Siemensma
A recent case about SMSF residency issues (CBNP Superannuation Fund v Commissioner of Taxation) has these key messages for SMSF trustees (and directors) and members — and their advisors:
An SMSF — to be a complying superannuation fund — must be an 'Australian superannuation fund' that:
Established in 1994, the CBNP Superannuation Fund (the SMSF), was a sole member fund with a corporate trustee, being CBNP. The member, Mrs M, was the sole director of CBNP up until January 2006 when she appointed her brother Mr Nicol as another director.
From 1 July 2000, Mrs M ceased to be a resident of Australia for taxation purposes, and moved to New Zealand. Therefore, since 1 July 2000, the central management and control of the SMSF had been overseas.
In 2004, an audit of the SMSF uncovered a breach of the 'in-house asset' rules which was reported to the Commissioner. Based on this report, the Commissioner followed up with a notice of non-compliance stating that the SMSF did not meet the residency rules under the SIS Act, for the year ended 30 June 2004.
The directors of the trustee:
At stake was the SMSF being declared a non-complying fund and — as a consequence — being assessed at the highest marginal tax rate:
The Court held that:
For more information, contact Maddocks on (03) 9288 0555 and ask for a member of the Maddocks Superannuation Team.
You can read more ClearLaw articles relevant to residency issues:
You can read earlier ClearLaw articles on a wide range of SMSF topics here.
Download a checklist of the information you need to order a document package.
  AATA 709.
 Section 42A of the SIS Act.
 Section 42A(5) of the SIS Act.
 Section 42A(1) of the SIS Act.
 CBNP Superannuation Fund v Commissioner of Taxation  AATA 709 at 14.
 Section 42A(5)(b) of the SIS Act.
 Section 42A(1).
Julian Smith is a partner in the Maddocks Commercial team.
Julian advises extensively in the following areas:
Julian advises clients ranging from public companies servicing the wholesale financial services market to high net worth individuals and their advisers.
Julian has been with Maddocks since undertaking articles in 2001.
The legal information and commentary on this site is general only. Documents ordered through Cleardocs affect the user's legal rights and liabilities. To assess their suitability for the user, legal accounting and financial advice must be obtained.
For more information, contact Maddocks on (03) 9258 3555 and ask to speak to a member of their team.