Tax with Max: Contributing super from overseas

Paying super from offshore, surviving a trustee’s death, the assets test.

Summary: Thousands of Australians live and work overseas, and want to continue making contributions into their super fund. Can it be done easily, and are such contributions non-concessional?

Key take-out: It is possible to make superannuation contributions from offshore, however one needs to be certain they are not being classed as an Australian resident for tax purposes.

Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

Contributing super from overseas

My daughter is in the US for the next three to five years. She was in an employer scheme here but the returns were not great, so I was wondering if you had data on fund performances. She did ask to join our SMSF but our aims would be different as she is 28 and we are retired, so I doubt we would be doing her any favours. She did look into the US 401 schemes but it appears the tax on early withdrawals (on returning home) is definitely limiting.

I assume as a resident overseas her contributions would be non-concessional. My advice was just to avoid super for the next few years but I think she thought that may be short-sighted. What would you recommend?

Answer: Your daughter should open an account with one of the better industry funds and have her existing superannuation rolled into this new account. Most industry funds offer an online comparison service that compares their fund with others. The comparison service compares such things as costs, efficiency of administration, and investment performance.

If your daughter is happy to put some of the excess cash she is producing while working overseas into superannuation, which she will not be able to access until she retires, it does make sense for her to make non-concessional contributions. Because she will be in an industry fund it will not matter that she is not living in Australia.

Your daughter should seek tax advice from a professional as to whether there is a risk that she could be classed as an Australian tax resident. Despite her being absent from Australia for longer than two years there is a chance that she could be held to still be a resident for income tax purposes. If this was the case any income that she is earning while working in the US would be taxable in Australia.

SMSF options when a trustee dies

In an SMSF with two trustees, if one of the trustees dies, can the fund be restructured as a single-member SMSF, or is it a requirement that a second trustee be appointed?

Answer: In the situation you have outlined you have three choices. The first is to find another individual to be appointed as a trustee of your SMSF. The second is to form a company that will take over as trustee of the SMSF, with the surviving member being a director of the company. The third choice is to transfer the funds out of the SMSF into another super fund and wind up the SMSF.

Clarifying assessments for the assets test

I am slightly over the asset threshold to qualify for the age pension. I am 66 and my wife is 54 and a member of our SMSF. If a contribution was made by her would her assets within the fund be kept separate for the assets test, or be combined with mine? If our funds are combined for assessment in our SMSF, would putting some cash into her industry fund solve the problem of me being over the limit?

Answer: Under the Centrelink assets test the value of a person’s superannuation is not counted if they are not of pension age unless they have commenced a pension from the account. This means that the value of your wife’s superannuation account, even though it is in an SMSF that you both control, will not be counted under the assets and income test until she reaches age pension age and does not start a pension from the account.

Awarding SMSF powers of attorney

I am currently living overseas and also the trustee of my SMSF. I have given power of attorney to my father to ensure that the fund is managed from Australia, which my SMSF rules allow. My service provider confirmed that this course of action would ensure that my fund was a complying fund during the time I was out of the country. I would be interested in your thoughts on this approach and whether or not it is a viable option for other Eureka subscribers living overseas.

Answer: This is a very complex area of superannuation law. I could not guarantee that giving a power of attorney to your father, and him managing the fund while you are overseas, will mean that your SMSF remains a complying fund. If your service provider has checked with the auditor of your fund, and is prepared to give you a guarantee that your fund will continue to be complying, what you have done should be a viable option.

Superannuation and carer payments

Will superannuation of $800,000 be counted by Centrelink in the assets test for a retired 45-year-old applying for a carer payment? When I turn 55 and start an account-based pension from $450,000, how will that affect applying for the age pension under both the assets and income tests?

Answer: As you were born after 1957 you will not be eligible for the age pension until you turn 67, and therefore the value of your superannuation should not be counted as an asset when you apply for a carer payment.

When you do reach age pension age the value of your superannuation will be counted under both the assets and income tests, whether you have started a pension or not. Also as you were born after 1964 you will not have reached preservation age until you turn 60 and therefore will not be able to start an account-based pension until then.

Paying a pension from a joint super bank account

My wife and I are members of our own SMSF fund and directors of the corporate trustee. We have not segregated the super assets and also use a common bank account for contributions. My wife started a pension with the balance of her super accumulation account last September. But she has not withdrawn any pension monies yet. We are planning to use the same bank account into which we deposit super contributions to pay her pension. Are there any issues with using the same bank account to deposit super contributions and withdraw pension money from?

Answer: If you do not segregate the assets of your superannuation fund between members in accumulation phase and pension phase, and you are using one bank account for members in both phases, you must obtain an actuarial certificate. This will be an extra cost for your SMSF as segregating the investments of your fund can result in increased accounting and administration fees.

Closing an SMSF to leverage franking credits

I am 69-years-old and my presently dormant sole director company is the trustee of my SMSF, with me as the sole member. The SMSF is in pension mode with approximately $150,000 invested in Chess-sponsored ASX equities and $150,000 in cash.

My company has approximately $70,000 in tax credits and I am considering closing the SMSF and transferring the shares and cash to my company, thus taking advantage of the tax credits and obviating double accounting costs and any future SMSF regulation. What major obstacles do you see to this strategy?

Answer: The main obstacle I see is that I’m not sure whether you will be better off by closing your SMSF and transferring the investments into the company. If your only source of income is an exempt pension from your superannuation fund, you have a better alternative.

By declaring and distributing fully franked dividends to you, so that your income including the franking credits did not result in any income tax payable, you would establish an extra source of income of the imputation credits refunded paid to you. Due to the complicated nature of what you are proposing, and the number of alternatives that you have, you should seek professional advice.


Max Newnham is a partner with TaxBiz Australia, a chartered accounting firm specialising in small businesses and SMSFs. Also go to www.smsfsurvivalcentre.com.au.

Note: We make every attempt to provide answers to readers’ questions, however, answers are of a general nature only. Subscribers should seek independent professional advice for more in-depth information that is specific to their situation.

Do you have a question for Max? Send an email to askmax@eurekareport.com.au