Australian Tax Treatment of Overseas Superannuation and Pensions

The Australian tax treatment of an overseas pension fund or superannuation fund is a complex area from an Australian tax perspective.

Is the Overseas Fund a ‘Foreign Superannuation Fund?

Firstly and most importantly, it is necessary to consider if the overseas pension fund would satisfy the definition of a ‘Foreign Superannuation Fund’ for Australian tax purposes as the Australian tax treatment is different depending on whether the overseas pension fund satisfies the definition of a ‘Foreign Superannuation Fund’. In our experience, UK funds may satisfy the definition, while United States IRA’s retirement plans generally do not.

Very broadly, the ATO’s view is that for an overseas pension fund to be classified as a superannuation fund for Australian tax purposes, it must exclusively provide for the payment of superannuation benefits upon retirement, invalidity or death of the individual. If you can withdraw funds from an overseas pension account before reaching retirement age, it’s unlikely to meet the Australian tax criteria for superannuation. Typically, you’ll need to request a Private Ruling from the ATO to determine whether the foreign fund aligns with the Australian tax definition of superannuation.

6 Months after Commencing Residency

Where the foreign fund does in fact meet the definition of a foreign superannuation fund, individuals moving to Australia generally have 6 months in which they can withdraw their foreign superannuation without the lump sum distribution subject to Australian tax.

More than 6 months after Commencing Residency

If someone becomes an Australian tax resident and receives a lump sum payment more than 6 months later, they will be subject to taxation on the earnings or growth of their foreign pension from the time they become an Australian tax resident until they receive the lump sum payment. The earnings or growth in this period would be subject to Australian tax at the individual’s marginal tax rate.

Moreover, an individual can choose to transfer their foreign pension into an Australian complying superannuation fund, where only the growth/earnings component is subject to a 15% tax rate upon commencing Australian tax residency in the superannuation fund. The remainder of the transferred balance is the tax-free component and not taxed in the superannuation fund.

Does not Qualify as a Foreign Superannuation Fund

However, where the foreign pension fund does not satisfy the definition of a ‘foreign superannuation fund’ for Australian tax purposes, broadly the ATO will treat a distribution from the fund as payment from a foreign trust. In this instance, the earnings and growth of the foreign fund since the date the pension fund was established would be subject to Australian tax at the individual’s marginal tax rate. It is also not possible to transfer the pension to an Australian complying superannuation fund.

Please do not hesitate to contact us if you are considering transferring your overseas pension to Australia or receiving a payment from your foreign fund.