Your super stays in Australia and usually cannot be taken early because you move to Dubai; the real risk is an SMSF that stops meeting the residency rules and becomes non-complying, which can cost it close to half its value in tax.
Super in a retail or industry fund
Your super stays where it is. Australian citizens and permanent residents cannot take their super because they have left Australia: they need a condition of release, such as retiring after reaching preservation age, which is now 60. The departing Australia superannuation payment is only for temporary visa holders. Keep your contact details, nominated beneficiaries and any insurance cover current, and check whether you can still claim on that insurance while living overseas.
The three residency tests for an SMSF
To stay a complying fund, an SMSF must be an Australian superannuation fund throughout the year. That means three things.
Established in Australia
The fund was set up in Australia, or at least one of its assets is in Australia. Most funds pass this easily.
Central management and control ordinarily in Australia
The fund's strategic decisions, such as its investment strategy and how its assets are held and used, must ordinarily be made in Australia. In an SMSF the members are the trustees, so when they move to Dubai, so does the fund's management. The law allows central management and control to be outside Australia for up to two years if the absence is temporary. A move that is intended to be permanent breaks the test from the start, even if you come back within two years.
The active member test
Either the fund has no active members, or at least 50% of the market value of the fund's assets attributable to active members belongs to active members who are Australian residents. A member who is not an Australian resident and is not contributing is not counted as an active member, so stopping contributions while you are overseas is part of most plans.
What non-complying costs
If the fund fails the tests, it becomes non-complying. In the year that happens, its assessable income includes the market value of its assets, less certain contributions, taxed at the top marginal rate of 45%, and its income keeps being taxed at that rate afterwards. For most funds that is close to half their value, and it cannot easily be undone.
The reform that has not happened
The 2021-22 Budget announced that the two-year absence rule would become five years and the active member test would be removed. At the time of writing, that change has not been legislated. Plan on the current rules.
Your options before you leave
Roll over to a large fund
Moving your balance to an APRA-regulated retail or industry fund ends the problem, because those funds are managed in Australia by their trustee. You lose direct control of the investments.
Convert to a small APRA fund
A small APRA fund keeps a fund of your own but with a professional trustee in Australia, so central management and control stays here.
Hand control to an Australian-resident attorney
A member can appoint someone in Australia under an enduring power of attorney to act as trustee or director in their place. This only works if that person genuinely makes the decisions, and it is usually combined with stopping contributions.
Wind up the fund
For some members, winding up the SMSF and moving to a large fund before departure is the cleanest answer.
Where Neo Legal fits
Cornwalls' tax and superannuation lawyers advise on the fund's trust deed, trustee arrangements and the residency tests, and we coordinate that with the rest of your move from Dubai. We work alongside your SMSF accountant or financial adviser and do not give financial product advice. Read our overview of moving to Dubai from Australia.
Frequently asked questions
Can I take my super out if I move to Dubai?
Not usually. Leaving Australia is not a condition of release for Australian citizens and permanent residents. You can access your super when you meet a condition of release, such as retiring after preservation age, which is now 60.
What happens to my SMSF if I move to Dubai?
It risks failing the residency rules once its trustees live overseas, because its central management and control moves with them. Unless the absence is temporary and no longer than two years, or control is handed to someone in Australia, the fund can become non-complying.
What is the SMSF two-year rule?
An SMSF's central management and control can be outside Australia for up to two years without failing the residency test, but only if the absence is temporary. A move intended to be permanent fails the test straight away.
What is the active member test for an SMSF?
Either the fund has no active members, or at least 50% of the value of active members' interests belongs to active members who are Australian residents. A non-resident member who is not contributing is not counted as active.
Has the SMSF five-year rule been legislated?
No. The 2021-22 Budget proposed extending the two-year rule to five years and removing the active member test, but at the time of writing it has not become law. Neo Legal and Cornwalls plan on the current rules.
This article is general information on the position at the date shown and is not legal advice. It is not tax or financial advice either: your position depends on your residency, your assets and your structures, so speak to us before acting on it.
