Can I bring my super to Australia?

Superannuation is the money set aside for your retirement. When you move countries, it is important to understand what happens to your superannuation. In Australia, superannuation amounts from foreign super funds may be accepted to either a complying Australian super fund or you personally – however there are traps along the way.

Are all overseas pension funds considered ‘foreign superannuation funds’ for the purposes of Australian law?

The two big issues surrounding overseas pension funds, is whether the fund is subject to ‘a condition of release’ and whether the offshore funds are held on ‘trust’ for the investor. Generally, we see clients who have thought that ‘all’ offshore pension funds will qualify under Australian law, leading to them not making the right choices before they seek advice. Common examples are the United States ‘individual retirement accounts’ (IRAs) or employer-sponsored ‘401k’ plans, where these fail the test for Australian law because you can take the money out early, regardless of age restrictions.

What are the options available to an Australian who has funds in an overseas pension fund that does not qualify as a ‘foreign superannuation fund’ for Australian law?

You should consider whether the foreign fund rules allow you to leave the accumulated money in the foreign fund or permit them to take a pension or annuity from the foreign fund. These decisions can save tax on the amounts or defer the time at which tax in Australia may be payable. If you decide to transfer the money into Australia after becoming a tax resident of Australia, tax consequences and contribution caps will need to be managed.

How serious are the financial consequences where the wrong option is chosen or you haven’t received all the necessary advice?

The biggest downsides revolve around getting the timing wrong and not choosing the right options for what you may want to do with the fund, with an additional issue about not having the right information about the composition of the funds. The wrong combination of these issues could lead to the whole of the amount received being treated as being assessable income of the individual in Australia, if you receive it as a resident of Australia and don’t have the records to dissect the character of their receipt.

Do contributions caps and rules needs to be considered when transferring super from a foreign super fund?

Non-concessional contributions caps need to be considered prior to making a transfer. Cap planning is a familiar issued for super advisors and financial planners, but isn’t always something that individuals returning to Australia may be familiar with or that offshore advisors may consider at all.

Currently, if you are under the age of 67, an Australian super fund can accept a contribution regardless of whether you are working. Following 67, to make a contribution, you must meet the work test. Non-concessional contributions can only be accepted up to the age of 75. Following this age, funds overseas cannot be contributed to an Australian super fund.

Depending on whether you are in your later stages of life, we have seen inbound client who do not meet the ‘work test’ at the time when they start making contributions to an Australian super fund.

What advice is essential prior to transferring fund from overseas?

Timing is vital. You should be thinking about whether you get their payments before you come an Australian resident, and whether you want to invest it into an Australian super fund (and thus need to manage non-concessional contributions caps and other restrictions), and whether you may be taxable on all/part of the amount if you receive the money after you become an Australian resident.

The other big issues are the foreign country tax rules, as sometimes the withdrawal will be subject to tax as a withdrawal from the pension fund and sometimes the type of income accumulated (like interest or dividends) may be subject to withholding tax when paid to a non-resident of that country. Australia may allow a ‘foreign tax offset’ or direct income taxes or withholding taxes, but maybe not on a compulsory exaction that is NOT a tax on income (like a withdrawal charge).

The third issue is around the composition of the fund amount – as to how much is capital (or corpus) and how much accumulated income on the invested funds. This s relevant if the amounts to be received may be [partly] taxable in Australia as a distribution of income not previously taxed in Australia paid to an Australian resident from a trust – under ‘Section 99B’ of the ITAA 1936. The capital part (corpus) is NOT taxable but you need to be able to dissect the total to demonstrate how much is corpus and how much is untaxed income.

How can Tax Controversy Partners help you?

Superannuation is your retirement savings - the money you have put aside after years and years of work to fund your retirement. We want to ensure that when you bring the funds to Australia it is done correctly – mindful of the tax implications of your choices and managing contribution caps and rules.

At Tax Controversy Partners, our experienced lawyers can assist you in understanding your options and explain the taxation implications receiving the funds at different times. Please contact us using our online contact form, via email at admin@taxcontroverypartners.com.au or by phone at 02 8513 3813.