Superannuation issues as an Australian non-resident - expats

Hi,

I am a medically retired self funded retiree. Zero government benefits. I am an Australian citizen, in my early 50's.

Last year I opened an Industry fund Superannuation 'non-concessional' account and applied for an early release pension based on my permanent incapacity. I deposited the maximum allowed $300,000 into the non-concessional account using the 3-year carry forward provision ($100,000 per year allowed plus two-years carry forward). As I understand, it means I cannot contribute more to the non-concessional account until three years from that date.

My predicament is that I have been spending time overseas and there may be the possibility in the future that I end up being deemed a non-resident for tax purposes (please no comments to just then stay in Australia - I have legitimate reasons to not be in Oz)

I understand the Industry Super Fund pension will remain tax free.

But I have other investments that I need to draw income from so as to survive. As the saying goes for Self Funded Retirees, we have a quandary with where to invest and end up with the 'TINA' predicament (There Is No Alternative) in that our only realistic investment options to draw enough income are property and shares. Forget savings accounts.

I invest in shares, both in managed funds and my own portfolio so as to receive dividend income. The problem is that as a non-resident there are massive taxes and franking credits are removed. A real blow to the guts. It removes ones ability to have retirement freedom as it severely depletes income. Capital Gains tax as well at full foreign resident rate and no CGT discount at all.

I have spoken to expats who have opened Self Managed Super Funds prior to becoming non-residents and began drawing income via their pension phase. One owns shares, but his pension from those dividends began when he was in Australia as a resident. So he is set for life (he has a large portfolio). He does not touch those shares, just lives off the dividends.

I am wondering if in the three years time, I could possibly open a Self Managed Super Fund and create a new Managed Fund account (I draw down from my other account and deposit back into the account structured within the SMSF)? I would only of course be able to transfer up to $300,000 in there. I would then need to apply again like I did with the Industry fund, to convert that to an early release pension based on permanent incapacity. I am not sure if this is possible because:

* The SMSF would possibly be created at a point I had become a non-resident and hence the tax implications make it prohibitive (as I understand the ATO website explanation)? Or;

* I am still a resident when opening the SMSF, but if I became a non-resident a SMSF account cannot be actively investing (buying and selling) without attracting heavy tax penalties, even if within a pension account (not sure about this)?

* The set up costs and accountancy fees would make SMSF too expensive?

if this is just all too difficult I am considering in drawing down from my managed funds account and transferring another $300,000 into the Industry Super Fund non-concessional account when the 3 years period maximum contribution expires. Then converting that over to another pension account once I get the additional permanent incapacity approval. The Super fund drawback is the lower returns on investment.

My problem is that the majority of my investment structures are all subject to massive non-resident tax implications and that includes losing franking credits. I am losing a lot of sleep over this. As my self funded income stream is only just on par to an old age pension payment without the pensioner discounts. Non-resident taxes etc, will drop my income stream to poverty levels and my choice is live in poverty in third world countries or sell off all my assets, live off the savings and then apply for the pension and public housing back in Australia (and if I am on a waiting list and money runs out I suppose a nice park and cardboard box will be my option - or a gravesite)


I would love to hear from expats who are in a similar position to me. Thanks in advance.

 

A person who is not a tax resident may find establishment of a smsf problematic under tax law. The fund could be found to be a non-resident non-complying fund. There are also rules which prevent it receiving a rollover. A non-resident may not be a trustee or trustee Director. The most practical alternative is a industry fund which doesnt have the concern. The alternative requires a enduring guardian act in your place as trustee which can be a massive risk and even quite problematic. It may be unnecessary.

And tax issues may impact on your country of residency regardless of which fund type. eg US resident taxpayers may be assessed on the fund earnings as the IRS dont recognise a smsf as a entity.

Spending time overseas doent mean you will be non-resident. These and smsf matters are complex and Australian advice is sensible.

 

I really appreciate your comments and wise input. I will look for advice. Kind regards.