SMSF Residency Requirements

As part of setting up a SMSF, it is essential that fund members (and the fund itself) can satisfy the following residency conditions in order for the fund to be an Australian Superannuation Fund:

1.  The fund will be established in Australia or will have at least one Australian-based asset. The fund will be established in Australia if the initial contribution to establish the fund was paid and accepted in Australia. Once it is determined that the SMSF was established in Australia it will meet this test for all subsequent financial years.
2. The central management and control of the fund will generally happen in Australia. This means the SMSF’s strategic decisions are regularly made, and high-level duties and activities are performed in Australia. High level duties and activities include formulating the investment strategy of the fund, reviewing the performance of the fund’s investments, formulating a strategy for the careful management of any reserves, and determining how assets are to be used for member benefits. Your fund will still meet this requirement even if its central management and control is temporarily outside Australia for up to two years. However, under current legislation, if central management and control is outside Australia for longer than two years, it will not meet this requirement.
3. The fund either has no active members or it has active members who are Australian residents and who hold at least 50% of either:

• The total market value of the fund’s assets attributable to super interests or
• The sum of the amounts that would be payable to active members if they decided to leave the fund.

A member is an ‘active member’ if they are a contributor to the fund or contributions to the fund have been made on their behalf.

The above residency conditions must be met for your SMSF to qualify as an Australian Superannuation Fund and therefore be eligible for the tax concessions available under the Australian Superannuation legislation. Tax concessions include member contributions and fund earnings generally being taxed at the concessional tax rate of 15% instead of the top marginal tax rate up to certain contribution limits. If your fund stops being an Australian Superannuation Fund because it does not satisfy the residency conditions, it may become non-complying. If the fund becomes non-complying, its assets (less certain contributions) and its income are taxed at the highest marginal tax rate (being 45%).

If the members are planning to go overseas for an extended period of time, you should obtain professional advice about the SMSF maintaining Australian residency. If the members of your fund become non-residents, but still wish to make or receive contributions, they may need to do this through a retail or industry super fund as opposed to their SMSF. 

Where a SMSF fails the residency tests, then you should consider rolling over your funds to a resident regulated super fund and wind up the SMSF in order to avoid the SMSF being assessed as non-complying and taxed at higher rates.

In the May 2021 Federal Budget, the government announced plans to relax the residency requirements for SMSFs. Under the proposed measures, members will be allowed to continue contributing to their superannuation fund while temporarily overseas for up to five years by:

• Extending the safe harbour provisions of the central management and control test (the second test discussed above) from two to five years.
• Removing the active member test (the third test discussed above).

The above proposed measures are not yet law but are expected to commence from 1 July 2022.