Tax with Max: keeping an eye on super from afar

Switching to an existing SMSF may give greater control of super while living abroad.

Summary: This article provides answers on how to manage your superannuation while moving overseas; how second cousins are still deemed relatives under superannuation laws; how to accept new members into your SMSF; when the higher contributions cap is triggered; how to find a fee for service adviser; direct share investing and whether SMSFs are protected from litigation against members.
Key take-out: Three tests apply to assess whether an Australian super fund is compliant; including location of assets and management and whether at least half the value belongs to Australian residents.
Key beneficiaries: SMSF trustees and superannuation account holders. Category: Superannuation.

Keeping control of your superannuation while living overseas.

My wife and I are in our mid-30s and have superannuation in retail funds. We are moving to the UK and understand we cannot open an SMSF as it would not meet the residency test. Could we become members of my mother’s SMSF and roll our superannuation into her fund? Our superannuation assets would be less than 10% of the total assets in my mother’s SMSF. If this not possible or otherwise practical are there any other methods by which we could obtain greater control over our superannuation investments while living overseas?

Answer. The three tests a fund must satisfy to be classed as a complying Australian superannuation fund are:

  •          it must have either been established in Australia or have an asset situated in Australia.
  •          central management and control of the fund must ordinarily be in Australia.
  •          it has no active members or at least 50% of the market value of the fund’s assets belong to members who are Australian residents.

From what you have described the value of your superannuation if rolled into your mother’s SMSF will at least meet the less than 50% of market value test. This should mean that you could become members of your mother’s SMSF. If you are exercising control over the investing of your money in the fund while overseas this could mean the fund would fail the central management and control test unless you plan to be away for less than two years.

Another option could be to roll your superannuation into one of the more advanced industry funds. In some cases these funds allow the members to choose shares to invest in and offer a wide choice of investment options at a very reasonable cost. If you still want to become members of your mother’s SMSF you should approach the fund's auditor to see if there would be any potential problems.

Doing business with relatives.

I am looking to invest in some property in the UK, preferably in my SMSF as I have ten years until I retire. Where is the line drawn in dealing with “relatives” for a SMSF? I am looking to purchase from a company in the UK where a second cousin is a director. The same company will provide the ongoing management and have numerous flats in the same location where they normally buy, renovate, let and never sell. The related party provisions deal with parties related to the SMSF which he is not, and obviously it won’t be rented out to direct family members.

Answer. The Superannuation Industry Supervision Act (SIS) includes second cousins in its definition of a relative. If your second cousin however does not have a controlling interest in the UK company this should not stop you buying the UK property from the company and having it managed it for you. As is always the case if you are in doubt you should check with the auditor of your fund.

Fill in the paperwork when accepting new members into an SMSF.

Please outline the formalities which must be satisfied (or are desirable) when a two-member SMSF, with a corporate trustee, desires to admit and accept contributions from a proposed additional fund member? At what stage must the ATO (or any other regulator) become involved?

Answer. The first thing you should do is check the trust deed of the SMSF to see if there is a procedure or documentation that must be followed. In the absence of this it would be good practice to at least have a letter from the member requesting that they join the fund, a resolution by the trustees confirming that the fund is admitting a new member, and a letter from the trustees confirming that the new member has joined the fund.

You will also need to check the trust deed to see if documentation must be prepared to admit a new employer as being a contributor to the fund. The ATO does not need to be notified of the new member joining the fund until its next annual return is lodged.

Happy birthday. Higher contributions accepted provided you turn 60 in the financial year.

The amount contributed to super in the 2014 year has been increased to $35,000 for people aged over 60. Is this only for those aged 60 at July 1, 2013? What is the situation for those who turn 60 during the course of the 2013/2014 financial year?

Answer. As long as a member is 60 by the end of the financial year in which the contribution is made the $35,000 contribution limit should apply to them.

Finding a fee for service advisor.

As a recent subscriber to the Eureka Report could you please tell me how do you find a fee for service adviser? Is there a directory out there somewhere, or is it by word of mouth? Are they only found in capital cities, as I live in Bathurst and there are none out here? I would appreciate your comment.

Answer. There is not a directory of fee for service advisers. The best advice I can give is to tell you who you should not be contacting. Any advisers employed by banks, insurance companies, or fund managers will more than likely not be true fee for service advisers.

Under the Future Of Financial Advice reforms the ban on commissions became compulsory in most cases for new advice received from July 1, 2013. There was however the ability for advisers to voluntarily comply with the FOFA reforms from July 1, 2012. This means when phoning a potential adviser you should ask them if they have either never taken commissions or voluntarily complied from July 1, 2012.

Once you have established that the adviser is fee for service the next thing to ask is what sort of advice they provide. If the answer concentrates mainly on product recommendations I would not recommend that you use them. If the answer highlights that they provide strategic tax planning advice as well as investment advice you should consider using them.

Direct investing in shares – don’t spend less than $1000.

What is the minimum amount I am able to be purchase to enter in to the stock market?

Answer. There are no minimum amounts set by either online or full service share brokers that I know of. However it does not make sense buying under at least $1000 in shares. This is because share broking costs can become too high a percentage of the purchase cost. For example if you only purchased one share for $500, and the brokerage and purchase cost was $50, that share would have to increase in value by 10% for you to just break even.

Litigants normally find it difficult to target money found in SMSFs.

Under certain conditions, money held in a family trust is protected from litigation, for example, someone suing me for defamation. What is the status of money held in an SMSF? If my wife and I hold a joint SMSF, could someone sue me for half of it, that proportion contributed by me or for none of it? I am not anticipating such an event, but wondered how safe SMSF funds are from litigation.

Answer. The balance of a member’s superannuation, whether it be in an SMSF or any other type of superannuation fund, is as safe if not safer than if it was in a family trust. The only time that money in a super fund can be attacked is when it can be shown that contributions were made to the super fund to avoid the funds it being attacked. This means rather than putting large slabs of money into super it is best to regularly contribute amounts over a longer period.