Can a non-resident be a member of an SMSF?

Yes, but the fund itself has to keep satisfying the definition of an Australian superannuation fund, and that is where non-residency causes trouble. The definition has three limbs, all of which must be met: the fund was established in Australia or at least one of its assets is situated in Australia; the central management and control of the fund is ordinarily in Australia; and the fund satisfies the active member test.

The active member test is the limb most often stated incorrectly. It is not a test about where the fund invests, and it is not satisfied by holding 50% of the fund’s assets in Australian assets. An active member is a member who is contributing, or for whom contributions are being made. The test is met if the fund has no active members at all, or if at least 50% of the value attributable to the superannuation interests of active members is held by active members who are Australian residents. The alternative formulation looks at exit benefits: at least 50% of the amounts that would be payable to or in respect of active members if they ceased to be members must be attributable to Australian-resident active members. Australian assets do not enter into it.

The practical consequence is that the simplest way for a departing member to protect the fund is usually to stop being an active member. A member who ceases contributions, and for whom nobody else contributes, is not an active member, so their non-residency does not put the active member test at risk. Contributions made while overseas are what break the test, and they can break it quickly where the departing member holds a large share of the fund.

The central management and control limb is separate and works differently. Central management and control must ordinarily be in Australia, and the legislation accommodates temporary absence: it can be treated as ordinarily in Australia even if it is temporarily outside Australia for a period of up to two years. What matters is where the strategic and high-level decisions are actually made, formulating the investment strategy, reviewing fund performance, and determining how benefits are paid, not where the paperwork is signed.

Failing the definition is expensive. A fund that stops being an Australian superannuation fund becomes non-complying: its income is taxed at 45%, and in that year the market value of its assets (less contributions not previously taxed) is brought into its assessable income, rather than just a single year’s income. That is why the planning has to happen before departure rather than after.

If a corporate trustee is in place, there is a separate Corporations Act question to check at the same time: a proprietary company must have at least one director who ordinarily resides in Australia, and a company whose only director moves overseas is in breach.

CoSec Partners prepares deed variations and the corporate trustee documentation, and can reconstruct a fund’s deed chain where the history is incomplete. Whether a particular member should remain in the fund, cease contributions, or roll benefits to an APRA-regulated fund before departure is superannuation and tax advice, which we do not provide. Those questions belong with the fund’s SMSF adviser or with a specialist superannuation lawyer, and we are happy to work alongside either.