Tax with Max: SMSFs and living overseas

SMSFs and non-residents, work test records, and more.

Summary: There are several options available for non-residents operating a self-managed super fund than having to close down the fund. These include converting the fund to an APRA-regulated SMSF, or rolling over into a commercial fund or industry fund.
Key take-out: Life insurance policies held in a fund cannot be transferred over to another fund. In most cases a new insurance policy must be taken out, which may include the need for a medical exam.
Key beneficiaries: SMSF trustees and superannuation accountholders. Category: Superannuation.

Can an SMSF be operated if living overseas?

I will soon be obliged to close down my SMSF as I am currently resident overseas. Could you please help me find a commercial fund that:

  • does not require its new members to be resident in Australia;
  • allows its members to invest directly in listed shares, ETFs, etc., and
  • which offers new members life insurance without a medical check, or which will accept the transfer of an existing policy?

Answer: You in fact have more than one option as a result of being a non-resident for your SMSF. The first and more expensive option is to convert your fund to an APRA-regulated self managed super fund. This would mean you would be replaced as the trustee of the fund by an APRA-regulated trustee company. The SMSF could then retain all of its investments as long as the new trustee company accepted the current investment holdings of your fund.

The second option would be to roll over from your SMSF into a commercial fund. The third option would be to roll over into an industry fund. Both of these options would require you selling all of the investments in your SMSF and transferring the cash into the fund that you have chosen.

There are commercial and industry funds that allow members to hold direct listed shares, but I am not sure about whether they allow ETFs (exchange-traded funds) and other types of direct investments. If you wanted to retain your current investments you really only have the option of your fund becoming an APRA-regulated fund.

The life insurance the policies that your fund currently holds could not be transferred to a new super fund. If you still wanted to have insurance within a super fund you would need to take this out in the new fund. In most cases this will require the completion of a medical questionnaire and also possibly a medical examination. One of the few exceptions is when you are a member of an industry fund and it receives compulsory SGC employer contributions.

Before making a decision on what to do you should seek professional advice so that you can assess which of your three options will provide you with the best result.

What records should be kept to satisfy the work test?

My wife and I are both over 65, currently receiving rental payments for our leased-out business, and would like to continue making concessional contributions to our SMSF. If I were to go out mowing lawns/gardening etc., would time sheets in a pay book suffice as proof of time worked? Under what circumstances could and should a couple with a SMSF consider starting a pension, drawing lump sum payments and re-contributing them back?

Answer: To satisfy the work test, so contributions can be made after turning 65, there should be some record available if the auditor of your SMSF requires it. This could be in the form of time sheets showing the hours worked and the payments received for those hours that would match the amount banked. It could also be pay slips or some other form of evidence provided by an employer. Your best option will be to ask the auditor of your fund what form of evidence they will require.

Understanding the treatment of account-based pensions

I turn 65 this year and have a flexible account-based pension from an industry fund and an SMSF which is still in accumulation phase, but which could be converted to a pension fund very easily. Will I be assessed on the value of the super funds as financial assets with an applied deeming rate or will I be assessed on the pensions they pay when applying for the age pension?

Answer: To ensure that your superannuation will be treated under the existing rules there are two things you must do. The first will be to commence an account-based pension from your SMSF before January 1, 2015. The second will be to apply for the age pension as soon as you can and start receiving it before January 1, 2015.

To be eligible for the current treatment of account-based pensions by Centrelink, rather than having the deeming rates applied to the value of your superannuation under the income test, a person must be receiving account-based pensions and the age pension from Centrelink before January 1, 2015.

Conditions of release, and accessing superannuation benefits

My husband is 62 and currently working as a manager in a company but is planning to retire by the end of this financial year. What is the law regarding working in the same industry after he retires? He has been told that he cannot work in the same field for a year. Is this true?

Answer: Once a person turns 60 the retirement condition of release to access superannuation benefits is the ceasing of employment. This means your husband only needs to resign from his current employer and he will have access to the total value of his superannuation at that date.

If he had been under 60 the retirement condition of release would have required him to actually retire. This means he would have had to cease his employment and intend not to work more than 10 hours per week. There is no hard rule as to how long a person must stay in retirement. This can mean that a person can retire, not work for a period of time, and because of financial or other reasons resume work as a full-time employee.

Actuarial certificates versus account segregations

I find it unfathomable the Australian Tax Office’s published guidance on the requirement for an actuary’s certificate when an SMSF is in pension mode. It seems that in some circumstances you must have one, and in others not. My wife and I are both planning to start drawing pensions from our SMSF when we both turn 60 in the middle of next financial year. So for half the year the fund will be in contributions mode, and for the other half in pension mode, but we will resume making contributions in the following financial year. We would like to avoid getting an actuary’s certificate if possible. Is there any way that we can avoid it?

Answer: When a super fund has members that are both in accumulation and pension phase the trustees of the SMSF have two options. The first is to obtain an actuarial certificate and the second is to segregate the assets of the fund between the member’s accounts in pension phase and those that are in accumulation phase.

If you decided you wanted to avoid the cost of an actuarial certificate you would need to open a new bank account that would receive all super contributions from the date you started your pensions. All income related to accumulation investments would also be banked into this account.

Your existing bank account would be designated as the pension phase bank account, all of the income from the current investments would be paid into this bank account, and the pension payments would be made from this account.

You should seek professional advice before you segregate the investments of your super fund to avoid the requirement of obtaining an actuarial certificate. This is because the accounting fees and administration costs for a fund with segregated investments can often be higher and in the end there may be no saving achieved.


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

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