You worked overseas. You built up retirement savings in another country. Now you’re back in Australia. What should you do?
This two-part series explores the main options available to Australians who hold superannuation or pension benefits overseas, and the key factors to consider before making a decision.
Two Main Options
If you hold super or pension benefits overseas, your choices usually fall into one of two broad categories:
Transfer your overseas benefits to your Australian superannuation fund
Withdraw your overseas benefits as a lump sum
Which option is better?
TLDR: It depends – on the type of fund, the country it’s held in, and your personal tax position.
Part 1 of this series will examine Option 1, including the considerations and tax implications.
Option 1: Transferring Your Foreign Super to Australia
Before considering Option 1, there are two key criteria to consider:
Is your overseas pension/fund a “foreign superannuation fund” under Australian law?
Does your overseas pension/fund allow transfers to an Australian superannuation fund?
Is the overseas fund a “foreign superannuation fund”?
For Australian tax purposes, your overseas fund must meet the definition of a “foreign superannuation fund”, which is defined as:
a fund that is an indefinitely continuing fund and is a provident, benefit, superannuation or retirement fund; or
a fund that is a public sector superannuation scheme.
Importantly, not all overseas retirement accounts qualify. For example, U.S. Individual Retirement Accounts are generally not considered foreign superannuation funds under Australian law.
Does the overseas fund allow transfers to Australian superannuation funds?
If your account qualifies as a “foreign superannuation fund” under Australian law, the rules and regulations of the overseas fund must also permit a transfer to an Australian superannuation fund.
Broadly, this depends on:
the rules in the fund’s trust deed; and
the laws of the country where the fund is based.
Some countries impose strict conditions on overseas transfers.
A common example is UK pension schemes. To transfer benefits from a UK pension to Australia, most UK pension schemes require that the receiving Australian super fund qualify as a Qualifying Recognised Overseas Pension Scheme (QROPS). Not all Australian super funds meet this requirement, which may limit your options.
In addition, the foreign superannuation/pension fund may require all of the entitlements to be rolled out which may cause issues in Australia (eg causing the member to exceed their contribution caps).
Tax implications of Option 1 – transferring to Australian super
Where a transfer of benefits from a foreign superannuation fund to an Australian superannuation fund is permitted, Australian tax law generally treats it as a superannuation contribution.
The receiving Australian super fund will typically report the transferred amount as either (or a combination of):
Non-assessable foreign fund amounts, which count toward your non-concessional contributions cap; and/or
Assessable foreign fund earnings, which count toward your concessional contributions cap.
Accordingly, care should be taken in respect to the amount transferred from a foreign superannuation fund to your Australian superannuation fund, as excess non-concessional contributions can be taxed at 47%.
Depending on the timing of the transfer, you may also be taxed on the growth in the overseas fund, known as applicable fund earnings (AFE).
Whether tax is payable—and the amount of tax payable—depends on a range of factors, including:
whether you were an Australian tax resident during the relevant period;
when your foreign employment ended;
whether investment earnings accrued while you were an Australian resident; and
how the transfer interacts with your contribution caps.
In some circumstances, it may also be possible to make an election so that the assessable portion is taxed within the super fund at the fund’s tax rate, rather than in your personal income tax return.
Why Consider Option 1?
Option 1 can offer several advantages, such as:
consolidation of retirement savings within the Australian superannuation system;
access to concessional tax treatment on earnings (generally 15%); and
the possibility that some or all of the transferred amount may be received tax-free.
However, if either or both of the two criteria are not satisfied, this option will not be available.
Furthermore, where a transfer is available, it may not always be the most tax-effective or practical outcome. Some disadvantages include:
not being able to access your benefits until you meet a relevant condition of release, such as attaining age 60 and ceasing an arrangement of employment, or attaining age 65; and
being subject to the superannuation investment rules, which restrict the type of investments that can be made within superannuation.
What can you do if Option 1 is not available or optimal?
In Part 2 of this series, we will delve into Option 2: withdrawing your overseas benefits as a lump sum, including the tax consequences, timing considerations, and situations where this approach may be preferable.
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au
Philippa Briglia
Special Counsel
T +61 3 9611 0174 | M +61 449 404 801
E pbriglia@sladen.com.au
Andrea Lin
Lawyer
T +61 3 9611 0189
E alin@sladen.com.au
This article was originally published on the Sladen Legal website: You’ve Got Foreign Super - Now What? Part 1 - Transferring to an Aussie Fund
