Q: I would like to know if there are any restrictions or conditions I have to be aware of regarding travelling overseas for extended periods of time in retirement. When I turn 70 next year I will stop working and will open an account-based pension income stream and will set up a SMSF. Then I want to start travelling.
A: So, we're starting to see a lot of these questions about travel now that we can do it again, and how it affects our superannuation savings and in particular, how it affects self-managed super funds.
By way of background, here the rules that are specific to super funds in Australia, which is all super funds, not just SMSFs, but all super funds, are intertwined between tax legislation (tax rules) and the superannuation rules. So, these rules are all intertwined between both of these pieces of legislation, and we need to ensure that all of those rules are met.
In order to be eligible for the tax concessions that are given to complying funds, the fund needs to meet all the super rules. It needs to be a complying fund. In order to be classified as a complying fund and get those tax concessions, there's a requirement that your fund be a resident regulated super fund. This is where the SIS Act (Superannuation Industry Supervision) rules, the super rules, intertwine with the tax rules. Because in order to be a resident fund, which makes the fund a complying fund or can allow the fund to be a complying fund, it needs to be a resident regulated fund. It needs to meet the requirements to be an Australian super fund.
Now, most of your larger funds, your industry funds, your retail funds, your corporate funds, they have no real problem meeting these requirements. It's because they have a large and diverse broad membership base. It would be highly unlikely that all the members of AustralianSuper fund upped and left Australia for a period. But when it comes to SMSFs, mum and dad style funds, this does or can become an issue.
So, if we start and look at what the rules are to be an Australian super fund so, remember, we need to meet these three rules to be able to be a regulated fund and get the tax concessions. And there are three distinct rules that need to be met throughout the life of our SMSFs here. I'm just going to focus on SMSFs, as I mentioned, because of the closely held nature.
The first rule to meet this requirement is that the fund is established in Australia or has assets located in Australia. It's pretty simple to meet that one. The second one is the central management and control of the fund is ordinarily in Australia. We'll touch on that shortly. And the third test is all around making contributions. It's called the active member test.
Now for the last few years we've had governments make announcements. They're looking to make changes to these rules or relax them a little bit. At the moment we're not seeing anything further on that. Maybe in the future we'll see some changes. But as it sits today, these three requirements still exist.
So, if we look at those rules, those tests, the first test around the establishment is pretty easily met. You set the fund up here or you have an asset held in Australia, most funds would meet that test.
The central management and control test is one which can cause problems if we're looking to travel extensively. What this requires is the high level decision making processes are carried out ordinarily in Australia. So, the trustee decisions around investment strategies, around paying pensions, around accepting contributions, those high level decisions are made by those people who are ordinarily in Australia.
If, for instance, you had a two member fund, a mum and dad style fund, and one of those is in Australia and one of those is overseas, 50% here, 50% abroad, you actually still meet that test.
