Life continues as normal – same rules apply for non-residents and residents alike

If you are retiring overseas and your super fund is with one of the many retails or industry super funds, then there is nothing that you will need to do differently from the perspective of contributions to super, accessing your super benefits or even the tax consequences of your super funds.

For these funds, Australian citizens and permanent residents who relocate overseas are treated in the same way as Australians that remain in Australia.

As per usual, you will be able to continue to contribute to your super fund when living overseas should you wish and it’s in your interest to do so.

And as per usual, you will not be able to access your super benefits until you meet a ‘condition of release’.

Conditions of release starts at age 55, but some restrictions can apply up to the age of 65 if you are still working or from age 60 if ceasing employment permanently. After age 65 (or age 60 if you cease working permanently), no conditions for the release of your super funds will apply and you will be able to access all super assets either as a lump sum or an income stream.

Between the ages of 55 and 65 (age 60 if cease permanent employment), there may be a slight amount of tax payable if you receive a lump sum or pension payments, but if there is it’s usually very marginal and can be managed to minimise the tax paid until age 65 or you permanently cease employment from age 60.

Some retail and industry super funds will expel you once you become a non-resident member

From time to time, we come across people that have been told by their super fund to leave their super fund when it had become known that they were no longer a resident of Australia.

This is probably due to the active member test as per the SMSF section. You can read that section for more details, but basically it states that a super fund can become a non-complying super fund, should more than 50% of its total active members’ fund balances be owned by active members that reside overseas.

An active member is a member that contributes to or rolls another super fund into the super fund that financial year.

Usually, a large retail or industry super fund would not worry about this rule. After all, if you have ten thousand active members that are contributing to the fund that has a combined balance of $500 million for those active members, what are the chances that over half that balance is owned by members living overseas and actively contributing to the fund?

Very, very little chance indeed.

But, it is enough to spook some retail and industry super funds. Why?

If a super fund becomes non-compliant they will lose all tax concessions for the fund, not only in the year that it became non-compliant, but since inception. That means that the Australian Taxation Office will tax the whole fund’s concessional income at the highest marginal tax rate (45%) and backdate the tax payable all the way back to when the fund was established.

For smaller funds, insecure funds or simply funds that are highly risk adverse it’s simpler to just kick out members that become non-residents and to limit the risk.

But don’t be alarmed, what can you do?

As with the example above, for medium to large super funds the likelihood of most active members living overseas is extremely small. You will probably have a greater chance of sitting on a beach in Thailand and being hit by a golf ball that was hit from Spain.

Most super funds will allow non-resident members because the risk is so small. It’s simply a matter of rolling the balance to a fund that accepts non-resident members.

If you are concerned that this may affect you, it is worth emailing your current super fund provider to see where they stand on this issue. We recommend an email as this will provide a paper trail in case a future problem arises.