convert SMSF to small APRA fund

[kiwiozearlyretirement]

We have a SMSF which is no problem to manage but plan to go overseas at some point for longer than 2 years so may fail the residency test. If you convert your SMSF to an APRA fund you incur capital gains immediately. But if you change the fund to a small APRA fund apparently there is no interruption so no CGT event. Then I think you can convert it back to a SMSF when you return. Has anyone done this or have inside information about what this costs? Ive seen variable annual costings up to 1% of total assets. Obviously that is a fair chunk if your super is over a million. One of us is post preservation age so it would not be a disaster to incur capital gains and they are in a low tax bracket but for the other it would be considerable.

[mjr]

"If you convert your SMSF to an APRA fund you incur capital gains immediately".  But then you say that "But if you change the fund to a small APRA fund apparently there is no interruption so no CGT event".

I can't answer your question, but I'm chiming in because I'm confused about from where you got this - can you clarify ?

[deborah]

I think I know where OP is coming from.

When you have superannuation, you don’t personally have a capital gains event when the fund (whether a managed fund or an SMSF) sells what it owns - but the fund does. Once you reach preservation age, and convert your superannuation to retirement phase, there are no capital gains due from a capital gains event, while in accumulation phase, your superannuation capital gain is taxed at 15% if the fund owned the investment for less than a year, or 10% otherwise.

Thus, if you move from one fund to another while you’re in accumulation mode, your super would have a capital gains event, and be taxed appropriately. However, like SMSFs, small APRA funds own individual assets - but each small APRA fund can hold only some of the assets that an SMSF can hold. Depending on whether the assets in the SMSF can be transferred, conversion from an SMSF to one of these funds wouldn’t generate a capital gains event, since the investment hasn’t been sold - just transferred (in specie transfer). As far as I know, later on you could transfer any investments back into your SMSF without generating a capital gains event.

You can also do an in specie transfer of investments from outside super into a small APRA fund or an SMSF.

[mjr]

I know about the super capital gains rules and in-specie transfers, turns out I didn't know that "Small APRA funds" (capital S) are a thing.

A bit of googling on that and all becomes clear.

[kiwiozearlyretirement]

Thanks Deborah that’s exactly what I was talking about. Sorry to confuse others with the terminology. But has anyone done this or know of anyone who has? I can’t seem to find many options on line and they all have excessive fees.

[mjr]

The budget just announced a relaxing of the residency test from 2 years to 5.  Does that help you out ?

[kiwiozearlyretirement]

It does indeed! Thanks mjr. Good old smsf association lobbying the govt with a bit of COVID thrown in I’ll bet.

[Wadiman]

Hadn't heard of that extension either - good to know for sure!

[bigchrisb]

Do you have a corporate trustee for the smsf? I added an Australian director (family member) for while overseas to stay compliant with the smsf. However, we have also stayed aus tax residents (wife is posted overseas for an aus government job), so our situation may be different to yours.
I love the advantages of super as a structure, but the compliance often seems harder than it needs to be.

[kiwiozearlyretirement]

No no corporate directors and no family members in oz to take that role. Hence looking at the SAF option. Perpetual and AET offer services and it seems to cost about $7000 for the first million. It is pleasing that the time away has been extended to 5 years. But if you don’t come back then losing 46% of your assets to tax is horrendous.