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Overseas Member
I have a SMSF for audit. The circumstances are that the member was an Australian citizen & lived in Australia when the SMSF was established. The trustee was a corporate trustee. He then moved overseas & appointed a family member as trustee by way of power of attorney, and this family member is now a director of the corporate trustee. I have 2 main problems to enable me to sign an audit report:
My understanding is that this appointment should have been by way of an endearing power of attorney. This fund has been so established by means of a general power of attorney. What are the implications with respect to my audit report?
Due to the covid-19 crisis, the member has been back in Australia for the past 18 months, however has not become a director of the corporate trustee company. Is this an issue that I as the auditor need to report?
Hi Andrew
The issues are similar to a query raised last week.
As I advised last week SMSF & residency is complicated. A SMSF where a member is to be based overseas can appoint an Australian based person as trustee in their place via an Enduring Power of Attorney (EPOA). By replacing the trustee with an Australian based trustee this allows the Fund to continue to meet the central management and control requirement. This would normally only apply for the period that they are based outside of Australia.
The SMSF residency rules are:
Fund established in Australia.
Central management and control is in Australia.
Fund has no active members or active members who are Australian residents have Fund assets at least 50% or greater.
The SIS legislation refers to an EPOA being required under section 17A(3)(b)(ii).
A good reference is SMSF ruling 2010/2 - "Self Managed Superannuation Funds: the scope and operation of subparagraph 17A(3)(b)(ii) of the Superannuation Industry (Supervision) Act 1993".
The ruling states:
"41. A power of attorney that is not an 'enduring power of attorney' will not be sufficient to satisfy the requirements of either subsection 10(1) or subparagraph 17A(3)(b)(ii).[16] If the attorney in these circumstances becomes a trustee of the fund, or a director of the corporate trustee, the status of the fund as an SMSF will not be maintained."
Refer also Tax Ruling 2008/9 - Income tax: meaning of 'Australian superannuation fund' in subsection 295-95(2) of the Income Tax Assessment Act 1997
https://www.ato.gov.au/law/view/document?DocID=TXR/TR20089/NAT/ATO/00001&PiT=99991231235958
The EPOA must comply with the relevant state legislation, the SIS Act & the Corporations Act.
In relation to the audit report the Fund would be in breach of Section 17A re the definition of an SMSF if a valid EPOA was not in place.
Normally the EPOA would only apply for the period that the member is based outside of Australia. The EPOA should be reviewed for the time period it applies and whether it ceases once the member is back in Australia.
Thanks
SMSF AAA