When thinking about investing overseas with your Self-Managed Super Fund (SMSF), it’s essential to perform detailed research upfront. As an SMSF trustee, you have the autonomy and duty to decide on your investment strategies.
Determining Asset Allocation
As a trustee, it’s essential to strategise the diversification of the superannuation portfolio to mitigate risks, which may involve deciding on investment allocations between Australian and overseas markets. Options for international investments often involve ETFs, managed funds, stocks, foreign currency, and direct property holdings. Creating a diversified and capital-preserving portfolio demands meticulous planning.
Understanding Added Complexities
Investing overseas does add complexity. You need to consider additional risks, such as currency risk and regulatory requirements. It’s essential to do your homework and seek specialist advice to ensure compliance to SMSF’s regulatory requirement amongst other things.
Managing Currency Risk
Exchange rate fluctuations can affect the value of your investments and any income received. Consider whether it’s wise to hedge currency risks, and seek professional advice to help you make this decision.
Legal Considerations in Foreign Countries
Understanding the laws of the country where you plan to invest is crucial. There may be restrictions on who can own assets and how investments must be held. In some countries, trust structures are not recognised. As SMSF is a special form of trust, it may require legal advice to establish and assert ownership by the fund.
Structuring Foreign Investments
Some countries may require foreign investments, such as direct property, to be owned via a foreign corporation controlled by the investor. This could subject the super fund to the In-house-asset breach unless the foreign corporation qualifies as a non-geared company or “13.22C entity.” Maintaining compliance with these requirements is critical.
Practical Management of Overseas Investments
As an SMSF trustee based in Australia, you may need to engage local agents or managers for overseas property investments. Reliable property managers can help with tenant negotiations, rent collection, and arranging local repairs.
Tax and Reporting Obligations
You may be subject to additional taxes and levies, along with foreign reporting requirements. For year-end reporting in Australia, your fund’s administrator will need to convert foreign income to AUD, determine entitlement to foreign tax credits, and account for foreign gains and losses. Non-English documentation will need to be translated and kept in Australia.
Compliance with Super Laws
Ensure you can obtain suitable evidence to demonstrate compliance with Australian superannuation laws. For example, if investing in direct property, ensure the country maintains official records such as a land registry for title searches and evidence of market value.
Sole Purpose Test
Ensure that your overseas investment is consistent with the sole purpose test, meaning it must solely provide retirement benefits. Personal use of the fund’s overseas properties by members or related parties is not allowed.
Conclusion
Investing overseas with your SMSF comes with its own set of advantages and challenges. Thorough preparation and compliance with regulatory requirements are essential. To navigate these challenges effectively and ensure a successful investment journey, contact Chan & Naylor for a consultation. Our experienced advisors can provide tailored guidance to help you make informed decisions and optimise your overseas investment strategy.
About Chan & Naylor
Established in 1990, Chan & Naylor has been a trusted partner for thousands of businesses and investors across Australia. Choosing Chan & Naylor Pymble means you’re not just selecting a service provider; you’re gaining a partner aligned with your business goals.
Our SMSF services are designed to provide you with expert guidance and support, ensuring your self-managed super fund is managed effectively. With a dedicated client manager and a team of specialised accountants, we are here to help you achieve your financial objectives. Contact us today to discuss how we can assist you with your SMSF needs.
Disclaimer
This article serves as general information only and may not account for the unique circumstances of individual readers. For personalised and strategic solutions tailored to your specific situation, we invite you to seek professional advice from Chan & Naylor. Our highly experienced team is dedicated to helping you navigate the complexities of Australian taxation, ensuring that your financial strategies align with the latest regulations. Contact us today to embark on a path of informed and customised tax planning for your property investments.
