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Self Managed Super Fund (SMSF) Article
Transferring Overseas Super to SMSF
By Tony Negline.
This article may be out of date.
8th June 2005
A key question for any Australian who has lived and worked overseas is should they transfer their overseas super or pension fund monies back into an Australian based super fund?
As you would expect this is not an easy question to answer. There are many emotional factors to consider including the difficult decision about where to retire. At a basic level, if you do not intend to retire in Australia then there may be little or no reason to transfer your retirement assets into this country.
There are also many Australian and international tax issues to work through. Often there will be tax issues to deal with in the overseas country where retirement assets are held. Sometimes the tax paid in overseas countries can used to offset some or all of the tax paid on a benefit in Australia.
The Australian tax rules became effective on 1 July 2004 after a Senate Select Committee found that the old rules, which were put into place in 1994, discriminated unfairly against some migrants and proposed conciliatory amendments which the government largely adopted. Although these rules have been around for some time they still cause confusion.
Any money transferred into Australia involves tax implications which revolve around residency status under our income tax laws. Residency for tax purposes is not the same as residency for immigration laws. It is possible to be an Australian citizen and not a resident for tax purposes. Equally it is possible to be a tax resident but not a permanent resident for immigration law reasons. (The ATO website has a handy tool that will help you work out if you are a tax resident – www.ato.gov.au and search to “residency”.)
If you transfer a lump sum of money from an overseas superannuation fund into an Australian super fund then you have to choose how the benefit is going to be taxed. The choice you make then impacts on how the Australian based super fund treats the benefit.
If you have been a resident (for tax purposes) for less than six months then any payment transferred into an Australian super fund will be treated as an undeducted contribution and will be subject to the normal preservation rules. You will not be taxed in Australia when the benefit is transferred into Australia. When the benefit is eventually paid from the Australian super fund it will be paid out tax free however any growth and earnings earned whilst in the Australian super system will be counted towards your Reasonable Benefit Limit.
If at least six months has elapsed since you became a tax resident and you transfer your overseas super into an Australian super fund then any growth that has occurred on those super benefits between six months after you became a tax resident and the date the funds are transferred into Australia will be taxed. You choose who pays some or all of this tax and this selection must be made in writing.
If you want to pay this tax yourself then the growth portion is taxed at your marginal tax rate. The overseas super benefit will be treated as an undeducted contribution and will be subject to normal preservation rules. This whole benefit will be paid out tax-free (except growth and earnings whilst the overseas benefit is in the Australian super system will be counted towards your RBL).
Alternatively you can elect to have this tax paid by your super fund. If this occurs then the amount of growth (between six months after you became a tax resident and the date the funds are transferred into Australia) is added to your super fund’s taxable contributions in the year the money is transferred into your fund. In effect this means the growth portion is taxed at 15%. This growth amount is counted towards your RBL and will form part of your Post June ’83 Component. The remaining amount will be classed as an undeducted contribution. The whole amount will be subject to the normal preservation rules and growth and earnings on the amount whilst this money is in Australia will be counted for RBL purposes.
Importantly when the overseas super is transferred, the person’s start date for that benefit does not transfer with that benefit. This is best explained by an example. Suppose Bill emigrated from the UK in 1973. In the UK he began working in 1965 and before coming out here he had been at the one employer which had an occupational pension scheme. Bill made modest super contributions to this scheme. Since arriving in Australia, Bill has had a number of jobs and only began receiving super in 1990 when the Super Guarantee started. He has just learned that he can transfer the modest money in his UK pension scheme to Australia however when the money arrives in Australia his start date of 1965 will not apply. This is unfortunate because any start date before July 1983 can provide major concessions.
Anyone wishing to transfer super assets into Australia needs to be aware that many countries only allow transfers if certain requirements are met. For example, some countries insist that the transferred benefits must be paid as a pension with specific features. Further it can take some time to arrange for the transfer so individual taxpayers and super funds need to be aware of the time limits.
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.