Recently, a client came to me with 2 questions about becoming a non-resident for Australian tax purposes.
He wanted to ensure that his self-managed superannuation fund does not become non-compliant with the Superannuation Industry Standards and Regulations due to Central Management and Control not being located in Australia, and
He believed that the circumstances of his relocation overseas amounted to becoming a non-resident of Australia for income tax purposes and he sought reassurance that this is the case and that this will not have negative implications on his super fund.
I will deal with the superannuation fund question first.
Self-managed Super Fund Residency Status
There are 3 residency conditions:
1. Established in Australia – this condition is satisfied.
2. The “Central Management and Control” of the fund is ordinarily located in Australia. This requirement will be met if the CM&C is temporarily outside Australia for up to 2 years. If CM&C is permanently outside Australia for any period, this requirement will not be met.
3. The fund either has no active members, or it has active members who control more than 50% of the fund and are Australian residents.
Central Management and Control of the fund focuses on the who, when and where the strategic and high-level decisions and activities of the fund are conducted. Those decisions and activities are creating and reviewing the investment strategy, reviewing investment performance, managing reserves and deciding on member benefits. Other activities, such as administration, accounting and auditing are not CM&C activities. The 2-year rule acts to include a fund as compliant if the member resides overseas for 2 years or less. It does not act to exclude a fund if the CM&C is temporarily overseas for more than 2 years. The active member test includes a fund as compliant if it has no active members. A member is active if he or she makes contributions into the fund or draws a benefit out of the fund. An employer can make contributions after departure in respect of service before the member resided overseas, and this would not make the member an active member.
Tax Residency Status.
You can use the Tax Office provided residency tool – “Determination of residency status – leaving Australia” to provide guidance as to whether you would become a non-resident for tax purposes. I have researched a number of tax office rulings and tax law case notes in respect of this matter, and this is a “grey area” of the tax law in that it is not a clearly defined rule, and cases can be found that indicate both resident and non-resident outcomes.
The main test of tax residency is the “resides test”. If you reside in Australia you are a tax resident. “Resides” has its ordinary dictionary meaning of where you live. If you were to be re-locating your residence overseas and not staying in one place, then this would be problematic.
If you do not satisfy the resides test (ie you are not an Australian resident), then you may still be an Australian tax resident if you satisfy one of 3 other tests:
1. Domicile test. If your permanent home is in Australia unless your permanent place of abode is outside Australia (i.e. a circular argument)
2. The 183-day test. If you are in Australia for more than half the year, unless your usual place of abode is outside Australia, and you have no intention of taking up residence here.
3. Superannuation test. Ensures that Aust. Government employees working at overseas posts are treated as Australian residents.
The Tax Office also publishes a table headed “are you a resident for tax purposes” which includes the following entries: If you leave Australia temporarily and do not set up a permanent home in another country you are generally an Australian resident for tax purposes”; and: “If you leave Australia permanently you are generally treated as a foreign resident for tax purposes”. This implies that if you set up a permanent home in another country you will be non-resident of Australia.
I believe that The Tax Office tool, and the legislation and case law all support the conclusion that you could become a non-resident of Australia for tax purposes in certain circumstances. I am also of the opinion that the Super Fund can remain a complying fund, provided that certain steps are followed. However, I cannot speak for the Tax Office or offer any guarantees.
At the very least, you would have a “reasonably arguable position”, which would avoid any penalties or fines if the Tax Office disallow the residency status.
Please note that we offer tax audit insurance through Accountancy Insurance Brokers, which will cover you for any costs incurred in defending these positions in the event of a Tax Office audit or review. The insurance covers our fees, but not interest, penalties or additional taxes imposed by the Tax Office. I recommend this insurance.
Please call me any time on 0419 430 393 if you need any more information.
We are looking to grow our business. Please recommend us to colleagues, family and friends, especially if they need assistance with complex tax issues.
I am a registered income tax agent. I have been in public practice for 38 years and I am providing this advice in accordance with my experience and with income tax law. I am not a solicitor, and I do not, and I am not permitted to provide, legal advice. If you have any concerns, you should engage a lawyer experienced in income tax matters to confirm the accuracy of this information and its relevance to your circumstances.. This information is based on one person’s personal situation and intentions. No other person should rely on this advice to make decisions of any kind. This opinion is based on the Australian income tax legislation and relevant case law, as I interpret the meaning of it. The law can be changed, and new cases can be heard which change the effect of decisions made prior to such changes. I could get it wrong. Therefore, I assume no liability and take no responsibility for the consequences of any actions taken by anyone as a result of the opinion expressed here.
You should seek a binding personal income tax ruling from the Tax Office before using any of this information.