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Australian Tax Treatment of Overseas Superannuation Fund and Pension Fund

Australian Tax Treatment of Overseas Superannuation Fund and Pension Fund

From an Australian tax point of view, how a foreign pension fund or superannuation fund is taxed is a complicated area.

Is the Overseas Fund a “Foreign Super Fund”?

The first and most important thing to think about is whether or not the overseas pension fund meets the definition of a “Foreign Superannuation Fund” for Australian tax purposes. This is because the Australian tax treatment of the overseas pension fund depends on whether or not it meets the definition of a “Foreign Superannuation Fund.” From what we’ve seen, UK funds may meet the description, but most IRA retirement plans in the U.S. do not.

In a broad sense, the ATO thinks that an overseas pension fund must only pay out superannuation benefits when the person retires, becomes disabled, or dies for it to be considered an Australian superannuation fund for tax reasons. If you can take money out of your overseas pension fund before you reach retirement age, it probably won’t count as superannuation for Australian tax reasons. It is common to obtain a Private Ruling from the ATO to find out if a foreign fund meets the definition of a superannuation fund for Australian tax reasons.

6 months after starting to live there

When a foreign fund fits the description of a foreign superannuation fund, people who move to Australia usually have 6 months to take out their foreign superannuation without having to pay Australian taxes on the lump sum distribution.

After more than 6 months of being a resident

But if someone gets a lump sum payment more than 6 months after starting to pay taxes in Australia, they will be taxed on the earnings or growth of their foreign income from the time they started paying taxes in Australia until the time they got the lump sum. Earnings or growth during this time would be taxed at the individual’s highest tax rate in Australia.

Also, a person can choose to have their foreign pension moved to an Australian complying superannuation fund, with only the growth/earnings component taxed at 15% in the Australian superannuation fund since they started living in Australia for tax purposes. The rest of the amount that was transferred is the tax-free part, which is not taxed in the superannuation fund.

Does not meet the requirements to be a foreign pension fund

But if the foreign pension fund doesn’t fit Australia’s description of a “foreign superannuation fund,” the ATO will usually treat a payment from the fund as a payment from a foreign trust. 

In this case, the foreign fund’s gains and growth since the pension fund was set up would be taxed in Australia at the individual’s marginal tax rate. You also can’t move the pension to an Australian retirement fund that meets the rules.

If you are considering receiving a payment from your overseas fund or transferring your pension from another country to Australia, please get in touch with Bates Cosgrave international tax consultants so that we can assist you with these processes.