This week we look at the active member test and how it may affect the complying status of your SMSF. The active member test is one of 3 tests which all have to be met at the same time for an SMSF to be an Australian superannuation fund and thus a complying fund. It is a complex area where the outcome is largely dependent on the individual circumstances of each case.
In last week’s article, we looked at the central management and control test and how it could affect the complying status of your SMSF when you spend an extended period of time overseas. This week, we will examine the other test that could affect the complying status of your SMSF, the active member test.
To recap, a complying SMSF must first be an Australian superannuation fund. The 3 tests a fund must satisfy to be treated as an Australian superannuation fund, are the establishment test, the central management and control test, and the active member test. All three tests need to be satisfied at the same time in the same income year for the fund to meet the definition of an Australian superannuation fund. Issues arise in relation to the latter two tests when members/trustees of SMSFs travel overseas.
The active member test is quite a complex test, put simply it requires that the fund either has no active members or active members who are Australian residents and hold at least 50% of the fund’s assets.
An active member in this context is any member who contributes to the fund or have had contributions made on their behalf. The issue arises when you and other members of your SMSF go overseas and continue to make contributions to the fund, which means that the fund now has active members who are not Australian residents. In that instance, the fund would fail the active member test and become a non-complying fund.
However, note that not all contributions would mean that you would fail this test. For example, if you worked for an employer whilst in Australia but they failed to make the appropriate superannuation contributions to your SMSF. Subsequently, you decide to go on an overseas holiday for an indefinite period, while overseas, your former employer pays superannuation guarantee charge to the ATO which then distributes the relevant amount to your SMSF. In this situation, the contribution to your SMSF was in respect of work performed while you were an Australian resident even though it was made when you were a foreign resident. Hence, you do not become an active member of the fund because of the contribution, provided you do not make any personal super contributions.
Remember, whether or not your SMSF would satisfy the active member tests largely depends on your individual circumstances. Changes, however small may mean that your fund loses its complying superannuation fund status with dire consequences. If you intend to continue making contributions to your super whilst you’re overseas, it may be wise to consider doing so into a retail or industry super fund. Those contributions will not be affected by the active member test and contributions can be rolled over into the SMSF when you return as an Australian resident.
If you have an SMSF and are planning to go overseas, take a moment consider whether the central management and control test or the active member test may affect the complying status of your fund. Superannuation rules are very complex so if you’re still unsure about any aspects of going overseas and your SMSF, speak to us today.