Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 56

Make sure going overseas does not spoil your SMSF

There have been many articles written about how an SMSF can maintain its residency status when the members of the SMSF go overseas. However, perhaps not many SMSF trustees are aware of the tax implications of going overseas for a period and then returning to Australia. For an SMSF to maintain its complying status and receive concessional tax treatment, the SMSF must be a resident regulated superannuation fund at all times throughout the financial year.

The three tests that must be met for an SMSF to maintain its residency status are:

Test 1: The SMSF must be established in Australia or have any of its assets situated in Australia.  This test is easy to meet if the initial contribution was received in the SMSF’s bank account in Australia or if at least one of the assets of the SMSF is in Australia in the financial year the residency status is tested.

Test 2: The central management and control of the SMSF must ordinarily be in Australia. If the person who makes the high level decisions for the SMSF is overseas, as long as the period of absence is temporary, the SMSF will satisfy this test. If this person goes overseas for an indefinite period, then the SMSF will fail this test. Take care with this test as many people believe there is a two year threshold. To be ‘ordinarily’ in Australia whilst being overseas will depend on the trustee’s intent; the substance of their absence; and whether the duration is ‘temporary’. The decision surrounding what is temporary involves consideration of the circumstances of each particular situation.

Test 3: The SMSF does not have any ‘active members’, or if it does have active members, then at least 50% of the superannuation account balance in the SMSF belongs to ‘resident active members’. An active member is one who contributes to their SMSF or has contributions made for them on their behalf (e.g. an employer). So if SMSF members go overseas, it is best they do not make any contributions. If they do, then they need to make sure that their total superannuation balance in the SMSF is not more than 50% of the total superannuation balance of all active members in the SMSF.

SMSF trustees often get this test wrong by measuring the balance in the SMSF of resident members against the balance of non-resident members. It is not the balance of all members, it is the balance of all active members that is measured for this test. To ensure that at least 50% of superannuation balance belongs to resident active members, it will be necessary for each resident member to be classified as an active member by having contributions made for them. If the superannuation balance of resident active members is less than 50% of the total balance of all active members, or resident members with at least 50% of the total balance fail to make a contribution while a non-resident does, the active member test would not be satisfied.

Failing the residency test

Once an SMSF fails the residency test it becomes a non-complying superannuation fund. Then, all of its assets accumulated over the years of its existence, less any member contributions (where no tax deduction has been claimed) plus earnings on investments received in the financial year that the SMSF becomes non-compliant, are taxed at a flat rate of 45%. Each year the SMSF remains a non-resident (non-complying) fund, the income will also be taxed at a flat 45%.

Another thing that people may not be aware of is what happens when the SMSF members return to Australia, and their SMSF changes its status from a non-resident SMSF back to a resident SMSF. In such case, the above formula takes effect again and all of the fund’s assets, less any members’ contributions to the non-resident SMSF, are included in the assessable income of the SMSF in the year it becomes a resident SMSF. The SMSF is taxed at either 45% (if the SMSF members return to Australia during the financial year) or 15% (if they return to Australia for the full financial year). Each year the SMSF remains a resident (complying) SMSF it will continue to receive the concessional tax treatment of 15%.

If you don’t seek advice on your SMSF before you depart it can be quite detrimental to your life savings if you go overseas and later return to Australia. You could end up paying 45% tax on your SMSF’s accumulated assets twice.

 

Monica Rule worked for the Australian Taxation Office for 28 years and is the author of  The Self Managed Super Handbook – Superannuation Law for Self Managed Superannuation Fund in Plain English.

 

5 Comments
Joe Bart
July 05, 2022

I no longer live in Oz, I have had my smsf for 30 years, I draw a pension, I am the only member and my Oz accountant is the co director with me in the corporate trustee and makes most decisions. I moved to Italy 7 years ago and am a non resident for tax purposes in Oz. I pay some tax in Oz on other income but, I trust my pension from my smsf is still tax free. Getting an answer is nearly impossible I am 74 and have not made contributions for 12 years Thanking you

Brina
March 07, 2018

Hi

My husband has got a self managed fund in Australia. His company is the trustee of the fund. We are planning to go overseas in a year when he retires at the age of 57. The assets of the fund including his business building ( in his smsf name) and rental property (in his personal) are located in Australia. The income of the fund will be derived from the rental of his property and business building. Can we leave overseas ? What does he central management and control mean ? If his company is the trustee and registered in Austealia can it be sufficient?

kevin
April 13, 2017

Hi, can you advise if your smsf is in the pension stage, eg your are both retired and on the aged pension, and you decide to live overseas, but still keep Australian residency status , can this make your Super non compliant. ?

Kind regards.

Kevin.

Monica Rule
April 13, 2017

Hi Kevin,

Even if your SMSF is in pension phase, you still need to satisfy the residency tests under the Taxation Law for your SMSF to be maintained as a complying superannuation fund. In your situation, if you are only accessing a pension and are no longer making any contributions into your SMSF, you only need to satisfy the central management and control test. Your SMSF will satisfy the first test of being established in Australia or an asset being situated in Australia. It does not need to satisfy the third test of having more than 50% of active member being resident active member. The third test only comes into play if contributions are being made into the SMSF. If the ATO has concerns about the central management and control of your SMSF then the compliance of the fund could come into question.

Gil
September 27, 2023

We have a smsf and we are retired.
We plan to move overseas and come back to Australia to visit the kids on a regular basis as a non resident. We will be out of Australia more that 183 days in any year.
How can our SMSF continue to be tax free?
What do we have to do before we leave in simple terms?
Thanks
Gil

 

Leave a Comment:

RELATED ARTICLES

Meg on SMSFs: Winding up market linked pensions with care

Meg on SMSFs: Where are the risks in our major super sectors?

How long will you live?

banner

Most viewed in recent weeks

Finding the best income-yielding assets

With fixed term deposit rates declining and bank hybrids being phased out, what are the best options for investors seeking income? This goes through the choices, and the opportunities and risks involved.

What history reveals about market corrections and crashes

The S&P 500's recent correction raises concerns about a bear market. History shows corrections are driven by high rates, unemployment, or global shocks, and that there's reason for optimism for nervous investors today. 

Howard Marks: the investing game has changed

The famed investor says the rapid switch from globalisation to trade wars is the biggest upheaval in the investing environment since World War Two. And a new world requires a different investment approach.

Welcome to Firstlinks Edition 605 with weekend update

Trump's tariffs and China's retaliatory strike have sent the Nasdaq into a bear market with the S&P 500 not far behind. What are the implications for the economy and markets, and what should investors do now? 

  • 3 April 2025

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

World's largest asset manager wants to revolutionise your portfolio

Larry Fink is one of the smartest people in the finance industry. In his latest shareholder letter, the Blackrock CEO outlines his quest to become the biggest player in private assets and upend investor portfolios.

Latest Updates

Investment strategies

An enlightened dividend path

While many chase high yields, true investment power lies in companies that steadily grow dividends. This strategy, rooted in patience and discipline, quietly compounds wealth and anchors investors through market turbulence.

Investment strategies

Don't let Trump derail your wealth creation plans

If you want to build wealth over the long-term, trying to guess the stock market's next move is generally a bad idea. In a month where this might be more tempting than ever, here is what you should focus on instead.

Economics

Pros and cons of Labor's home batteries scheme

Labor has announced a $2.3 billion Cheaper Home Batteries Program, aimed at slashing the cost of home batteries. The goal is to turbocharge battery uptake, though practical difficulties may prevent that happening.

Investment strategies

Will China's EV boom end in tears?

China's EV dominance is reshaping global auto markets - but with soaring tariffs, overcapacity, and rising scrutiny, the industry’s meteoric rise may face a turbulent road ahead. Can China maintain its lead - or will it stall?

Investment strategies

REITs: a haven in a Trumpian world?

Equity markets have been lashed by Trump's tariff policies, yet REITs have outperformed. Not only are they largely unaffected by tariffs, but they offer a unique combination of growth, sound fundamentals, and value.

Shares

Why Europe is back on the global investor map

European equities are surging ahead of the U.S this year, driven by strong earnings, undervaluation, and fiscal stimulus. With quality founder-led firms and a strengthening Euro, Europe may be the next global investment hotspot.

Chalmers' disingenuous budget claims

The Treasurer often touts a $207 billion improvement in Australia's financial position. A deeper look at the numbers reveals something less impressive, caused far more by commodity price surprises than policy.

Fixed interest

Duration: Friend or foe in a defensive allocation?

Duration is back. After years in the doghouse, shifting markets and higher yields are restoring its role as a reliable diversifier and income source - offering defensive strength in today’s uncertain environment.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.