For medical practitioners, taking an overseas sabbatical can be a life-changing experience. Whether you are looking to learn new skills, gain a fresh medical perspective or simply giving back to a community in need.
Transitioning patients and management of the practice will always take priority when preparing to leave for a sabbatical. With the multitude of tasks ahead of you, reviewing your self-managed super fund (SMSF) is most likely not sitting at the top of the ‘to-do’ list. However, failure to satisfy the SMSF’s residency rules will result in the super fund losing its tax concessions (this means, among other things, having the top marginal tax rate applied to the entire asset value of the SMSF less undeducted contributions).
If the following applies to you, then read on:
- You are the trustee of an SMSF, and
- Planning to leave the country for more than two years, or
- Leave temporarily and become a non-resident for tax purposes.
Residency Qualification Tests
To qualify for concessional tax treatment, an SMSF must be a complying super fund. That means the SMSF must, among other things, be a ‘resident-regulated superannuation fund.’ To qualify it must always pass three residency tests.
In general terms, the Australian Tax Office (ATO) will check that the fund meets the following expectations:
- The fund was established in Australia, and
- All strategic decisions for the fund are made by a trustee who is located in Australia, and
- More than half of the superannuation balance in the fund belongs to an Australian resident.
How to Avoid Residency Issues
As an SMSF trustee, there are several different strategies that you could consider before heading overseas. For instance, you could arrange for contributions to be made to another industry fund in your absence. The total contribution could then be rolled into the SMSF once you return. Another option is to consider delegating selected duties to another Australian resident.
SMSF trustees are responsible for ensuring their fund remains compliant. It is therefore crucial you seek advice on how your SMSF will be managed before you go overseas. An experienced advisor will be able to ensure that your SMSF satisfies the ATO’s residency tests. They can also make sure your fund continues to perform in an effective manner that will benefit you in the long term.
Our Associate Directors Angela Stavropoulos and Kristy Baxter head up the medical services division at Pilot Partners. Our accounting firm understands the unique professional pressures and time constraints faced by medical practitioners. Together, Kristy and Angela have more than 30 years of experience providing accounting, tax and business advice to the medical community. If you are considering a sabbatical in the near future, please contact them on (07) 3023 1300 to learn how they can help ensure your SMSF remains compliant.