If you have migrated or returned home to Australia, you may be able to transfer your retirement benefits from an overseas super fund to a complying Australian super fund, and benefit from the concessional tax environment.
An amount paid from a foreign super fund has two components:
- the applicable fund earnings (also called the growth component), which are any earnings on the overseas super fund while the individual was an Australian resident; and
- the balance of the transfer.
The tax paid on the foreign super lump sum depends on when the benefit is received, whether the individual makes an election concerning applicable fund earnings, their age and their non-concessional caps.
The balance of the transfer is not assessable to the individual or the fund, however it counts towards the non-concessional cap. Therefore any breach of the cap may attract excess contributions tax.
Paying tax
The applicable fund earnings are taxable and the amount to be paid depends on the outcome of the following three scenarios:
1. The Australian super fund receives the transfer within six months of the individual becoming an Australian tax resident.
The applicable fund earnings are not assessable to the individual or the fund, but they are treated as a non-concessional contribution and subject to the non-concessional cap.
2. The Australian super fund receives the transfer after six months of the individual becoming an Australian tax resident, and no election is made regarding the applicable fund earnings.
The applicable fund earnings are not assessable to the fund but are treated as a non-concessional contribution subject to the caps. It will be assessable to the individual at their marginal tax rate (MTR). The Medicare levy may also apply.
3. Australian super fund receives the transfer after six months of the individual becoming an Australian tax resident, and an election is made regarding the applicable fund earnings.
The applicable fund earnings are assessable to the fund at 15%. It doesn’t count towards either the concessional or non-concessional caps. It isn’t assessable to the individual. The entire balance must be transferred to the Australian super fund in order to use this election. This means that the member cannot do a partial transfer from their overseas fund.
Important: Once an election is made regarding who pays the tax on the applicable fund earnings, the choice is binding and can’t be revoked or varied (ATO ID 2012/27).
An issue to consider is in a circumstance where the amount transferred meets either scenario one or two above and is close to the non-concessional contribution cap. The individual should consider the potential impact of exchange rate fluctuations, which may cause the transfer to breach the caps. If the breach was due to foreign exchange movements, the Commissioner may exercise his discretion to disregard the excess contributions based on this and the circumstances of each case (PS LA 2008/1).
Transfers from the UK
Further restrictions apply to UK pension transfers. Any transfer from a UK registered pension scheme to an Australian super fund will be subject to tax up to 55% in the UK unless the Australian super fund is a qualifying recognised overseas pension scheme (QROPS).
Among other requirements, a QROPS status means that the trustee agrees to report all rollovers and payments from the benefit for 10 years after funds are transferred out of a UK pension.
Payments made after 10 years must also be reported unless at the time of the payment the member is not a UK tax resident and has not been within the preceding five tax years. If the amount withdrawn is considered an ‘unauthorised payment’, such as exceeding 25% of the account balance of the UK transfer amount, transfers to non-QROPS funds, and family law payments, the payment may be subject to UK tax even if it occurs in Australia.
Importantly, if an account is made up of UK transferred amounts and other amounts (including fund earnings), any payments are taken to be made from the UK transferred amount first. It is important to check that your fund meets the definition of QROPS, and can comply with these requirements if this situation applies to you.
Finally, if the member is aged 65 but below 75, they need to meet the work test during the financial year before the contribution is made from their foreign super fund to their Australian super fund. This means that they are gainfully employed for at least 40 hours in a consecutive period of 30 days in the financial year.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should, before acting, consider the appropriateness of the information in regards to their objectives, financial situation and needs and, if necessary, seek professional advice.
