|
||||
Tax treatment of transfers from foreign super funds |
||||
 |
||||
Overview
This information sets out the Australian tax treatment of a transfer from a foreign super fund. You may be subject to other obligations in the foreign country.
You may be able to transfer an amount from a foreign super fund to:
- a complying Australian super fund
- yourself.
Whether you can make these transfers will depend on the rules of the super fund from which you are making the transfer.
You or your fund may have to pay income tax on some or all of the amount.
If you transfer the amount to a complying Australian super fund, the amount will generally count towards either or both of your contributions caps and you may have to pay excess contributions tax.
When we say 'super interest' in this document we mean any amount, benefit or entitlement that a member holds in a fund.
Transferring amounts to a complying Australian super fund
Conditions
Certain conditions must be met before your complying Australian super fund can accept a transfer from your foreign super fund.
A transfer from your foreign super fund is a member contribution.
Age limits |
If you are aged 65 or more at the time of the transfer, your Australian super fund can only accept the contribution if you meet the work test. The 'work test' requires a person to have worked at least 40 hours within 30 consecutive days in a financial year. People who are aged between 65 and 74 must meet the work test to be allowed to make personal superannuation contributions. If you are under 65 at the time of the transfer, your Australian super fund can accept the contribution even if you are not working. Your Australian super fund cannot accept a member contribution for you if you are aged 75 or more. |
Tax file number |
Your Australian super fund cannot accept a transfer from your foreign fund unless:
If your Australian super fund does not have your tax file number they must return the whole amount to your foreign fund. |
Fund-capped contribution limit |
If your Australian super fund receives a transfer from your foreign fund which is more than your fund-capped contribution limit, it must return to the foreign fund the amount which is over your fund-capped contribution limit within 30 days. This rule is designed to prevent you from inadvertently exceeding your non-concessional contributions cap. You cannot claim a personal superannuation deduction for any part of the transfer from the foreign fund. Your fund-capped contribution limit for a financial year depends on your age on 1 July of the financial year. If, on 1 July of the financial year, you are:
For more information on the non-concessional contributions cap for a financial year, see Key superannuation rates and thresholds. |
Example 1
Santiago is 68 and transfers his super interest of $A198,000 from Argentina to Australia in 2008–09.
Santiago was unaware that the contribution would count towards his non-concessional contributions cap. He meets the work test and has given his fund his tax file number. However, as he is older than 65, his fund-capped contribution limit is only $150,000. His Australian super fund must return the excess $A48,000 to his super fund in Argentina. Santiago waits until the next financial year to transfer the excess $48,000 to his Australian super fund so that he doesn’t exceed his non-concessional contributions cap.
Income tax
You have to pay income tax on the applicable fund earnings component of a foreign fund transfer.
In general terms, the applicable fund earnings are the earnings on your foreign super interest which have accrued since you became a resident of Australia.
How the applicable fund earnings are calculated depends on whether you were an Australian resident at all times during the period to which the lump sum relates. The way to calculate your applicable fund earnings is set out at section 305-75 of the Income Tax Assessment Act 1997.
|
You can request a private ruling to determine how much of a transfer is applicable fund earnings. For more information, refer to How to apply for a private ruling. |
The six month rule
None of your foreign super interest is treated as applicable fund earnings if you transfer it to Australia within six months of:
- becoming a resident of Australia, or
- your foreign employment terminating.
Example 2
Leonard grew up overseas, and contributed to a super scheme under the rules of that country. He emigrated to Australia and became an Australian resident in September 2008. At that time, his super interest was the equivalent of $A300,000.
In May 2009, he decided to transfer the balance from his foreign super fund to his Australian super fund. The value of his super interest was then $400,000, so his applicable fund earnings were $100,000. Leonard is required to declare this amount in his income tax return (or he may be able to include the amount in his fund’s assessable income – see Including applicable fund earnings in your fund’s assessable income.)
Example 3
Cameron worked overseas for two and a half years and accrued the equivalent of $A25,000 in his foreign super fund. He returned to Australia in July and arranged for the transfer of his foreign super interest in October. The amount transferred was $A27,000, which included $2,000 he earned after he became an Australian resident. However, because he transferred the amount within six months of becoming an Australian resident, none of the amount is treated as applicable fund earnings.
Including applicable fund earnings in your fund’s assessable income
You may be able to make an election to include some of your applicable fund earnings in your fund’s assessable income. This will mean that your fund will pay the tax on the amount of your applicable fund earnings you elect, instead of you. Your fund pays income tax at 15% which may be less than the rate of tax that you pay.
There are conditions to be met before you can make the election. You must:
- have been resident in Australia for more than six months or have terminated your employment more than six months ago
- transfer the whole of the foreign fund interest directly to a complying Australian super fund.
If you do not meet the conditions you must still include any applicable fund earnings in your personal assessable income but you cannot elect to include any of the amount in your fund’s assessable income.
Your election must be made in the approved form Choice to have your Australian fund pay tax on a foreign super transfer. For more information, including a copy of the approved form, refer to Tax payable on a foreign super transfer.
Example 4
Tony transfers $160,000 from his foreign super fund to his Australian super fund. The transfer is the whole of his interest in his foreign fund. The applicable fund earnings amount is $40,000.
If Tony makes no election he must include the $40,000 in his personal assessable income for the year (taxed at his marginal tax rates).
If Tony elects to include $30,000 of the applicable fund earnings into his fund’s assessable income, his fund will include $30,000 in its assessable income (taxed at 15%) and Tony must include $10,000 in his personal assessable income for the year (taxed at his marginal tax rates).
If Tony elects to include $40,000 of the applicable fund earnings into his fund’s assessable income for the year, his fund will include $40,000 in its assessable income (taxed at 15%) and Tony will not have to include any of the amount in his personal assessable income for the year.
Excess contributions tax
When you transfer an amount from your foreign super fund to your Australian super fund, your fund will report the transfer as a contribution for you for the year.
We use the contributions your fund reports to work out your concessional and non-concessional contributions for the year.
How your fund reports a foreign fund transfer
Your fund must include the transfer in the contributions it reports for you.
Your fund will report the transfer at the:
- Non-assessable foreign fund amount label, and/or
- Assessable foreign fund amount label.
If you elect to include some of your applicable fund earnings in your fund’s assessable income, the amount you elect will not be reported at either of these labels. It will be reported as part of your total contributions.
|
For more information on what types of contributions your funds report and how we use them to work out your concessional and non-concessional contributions, see Excess contributions tax and how funds report your contributions. For more information about excess contributions tax, see Super contributions - too much super can mean extra tax. |
Non-assessable foreign fund amount
Generally, most of a transfer from a foreign fund will consist of an amount which the fund does not include in its assessable income (unless you make an election). This amount will generally consist of contributions you have made to the foreign fund and the earnings on those contributions.
The non-assessable amount is the amount of the transfer which was ‘vested’ in you at the time of the transfer. Vested means that you were entitled to it – it had to be paid to you at law if you met any other necessary conditions.
Fund earnings will generally have been vested in you at the time of the transfer even if they weren't allocated to your account until the time of the transfer.
The non-assessable foreign fund amount your fund reports will include any applicable fund earnings unless you have made an election to include all or part of the applicable fund earnings in your fund’s assessable income.
If you elect to include some or all of your applicable fund earnings in the assessable income of your fund, your fund will not report at this label the amount you elect, even though it is now included in the fund’s assessable income. The amount is no longer treated as a contribution but treated like normal earnings of your fund.
The amount reported at the Non-assessable foreign fund amount label is counted towards your non-concessional contributions.
|
The applicable fund earnings are personally assessable to you unless you make the election to include the amount in your fund’s assessable income. |
Assessable foreign fund amount
Any amount of a foreign fund transfer that exceeds the amount that was vested in you at the time of transfer is included in the assessable income of the fund.
The amount reported at the Assessable foreign fund amount label is counted towards your concessional contributions.
Example 5
When John arranged for a transfer from his foreign super fund to his Australian super fund, his account balance was $A300,000. However, his foreign employer allocated an additional $75,000 to John as a discretionary payment in recognition of his years of service. The additional $75,000 is the assessable component of the total transfer amount of $375,000.
Example 6
When Guy arranged for a transfer from his foreign fund to his Australian super fund, his account balance was $200,000. However, as part of finalising Guy’s account, his foreign fund credited $15,000 in earnings to his balance. Normally, this would not have been done until the end of the calendar year. However, under the rules of the foreign fund, earnings must be credited to an account prior to its closure. In this example, the earnings were vested in Guy, even though they would not have been credited to his account until later in the year if he had not requested the transfer.
Case study
The following case study outlines the income tax and excess contributions tax consequences of a transfer from a foreign super fund, depending on the amount of applicable fund earnings the member elects to include in the fund's assessable income.
Marianne, 62, transferred $420,000 from her foreign super fund to her complying Australian super fund in 2008–09, several years after she became resident in Australia. She had given her tax file number to her fund when she opened her account. Her fund-capped contribution limit is $450,000. As she is 62 years old, her fund does not have to confirm that she meets the work test before accepting the contribution.
The transfer consisted of:
- $400,000 which was vested in her at the time of the transfer, of which $50,000 was applicable fund earnings
- $20,000 which her foreign employer added to her account balance at the time of the transfer as a discretionary payment.
Option 1
Marianne decides not to include any of the applicable fund earnings in her super fund’s assessable income.
Her fund reports:
- $400,000 at the Non-assessable foreign fund amount label
- $20,000 at the Assessable foreign fund amount label
- $420,000 at the Total contributions label.
Income tax |
Marianne must include $50,000 applicable fund earnings in her personal assessable income for the year and pay tax on the amount at her marginal tax rates. The fund must include $20,000 in its assessable income for the year and pay tax on the amount at 15%. |
Excess contributions tax |
$400,000 is counted towards Marianne’s non-concessional contributions. $20,000 is counted towards Marianne’s concessional contributions. |
Option 2
Marianne decides to include all of the applicable fund earnings in her super fund’s assessable income.
Her fund reports:
- $350,000 at the Non-assessable foreign fund amount label
- $20,000 at the Assessable foreign fund amount label
- $420,000 at the Total contributions label.
Income tax |
Marianne does not include any amount of the transfer in her personal assessable income for the year as she had elected for the full amount of her applicable fund earnings to be included in the fund's assessable income. The fund must include $70,000 ($20,000 + $50,000) in its assessable income for the year and pay tax on the amount at 15%. |
Excess contributions tax |
$350,000 is counted towards Marianne’s non-concessional contributions. $20,000 is counted towards Marianne’s concessional contributions. The $50,000 does not count towards either her concessional or non-concessional contributions. |
Option 3
Marianne decides to include part of the applicable fund earnings in her super fund’s assessable income. She elects to include an amount of $30,000.
Her fund reports:
- $370,000 at the Non-assessable foreign fund amount label
- $20,000 at the Assessable foreign fund amount label
- $420,000 at the Total contributions label.
Income tax |
Marianne must include $20,000 (her applicable fund earnings of $50,000 less the $30,000 she has elected to include in the fund's assessable income) in her personal assessable income for the year and pay tax on the amount at her marginal tax rates. The fund must include $50,000 ($20,000 + $30,000) in its assessable income for the year and pay tax on the amount at 15%. |
Excess contributions tax |
$350,000 is counted towards Marianne’s non-concessional contributions. $20,000 is counted towards Marianne’s concessional contributions. The $30,000 does not count towards either her concessional or non-concessional contributions. |
For more information on how your funds report your contributions and how these amounts affect your concessional and non-concessional contributions, refer to Excess contributions tax and how funds report your contributions.
Transferring amounts to yourself
Income tax
If the lump sum from the foreign super fund is paid to you (or to another person or entity on your behalf) then the assessable amount of the payment and any applicable fund earnings must be included in your assessable income and will be taxed at your marginal rate.
The remainder of the transfer will not be subject to income tax.
Assessable foreign fund amount
Any amount of a foreign fund transfer that exceeds the amount that was vested in you at the time of transfer must be included in your personal assessable income.
Applicable fund earnings
In general terms, the applicable fund earnings are the earnings on your foreign super interest which have accrued since you became a resident of Australia.
How the applicable fund earnings are calculated depends on whether you were an Australian resident at all times during the period to which the lump sum relates. The way to calculate your applicable fund earnings is set out at section 305-75 of the Income Tax Assessment Act 1997.
|
You can request a private ruling to determine how much of a transfer is applicable fund earnings. For more information, refer to How to apply for a private ruling |
The six month rule
None of your foreign super interest is treated as applicable fund earnings if you transfer it to Australia within six months of:
- becoming a resident of Australia, or
- your foreign employment terminating.
Example 7
In June 2005, Hassan left Australia and worked overseas. During this time, he contributed to a foreign superannuation fund. In July 2008, Hassan returned to Australia and immediately again became an Australian resident for tax purposes. At this time, his foreign super interest was valued at $12,000.
In February 2009, Hassan decided to transfer the balance from his foreign super fund to himself. The value of his super interest was then $13,500, of which $1,500 was earned since he became an Australian resident. The $1,500 represents applicable fund earnings which Hassan is required to declare in his income tax return. Hassan does not have to include the $12,000 in his assessable income.
Excess contributions tax
None of the transfer will count towards your superannuation contributions caps.
Transfers from United Kingdom funds
United Kingdom (UK) funds must comply with the requirements of Her Majesty’s Revenue and Customs (HMRC). HMRC have information available on their website about transferring amounts from UK funds to non-UK funds, including Australian super funds or residents.
If a transfer from a UK fund causes you to pay excess contributions tax, you may also be required to pay tax in the UK.
|
You may wish to read |
|
The Tax Office takes no responsibility for the information provided by HMRC. |
Last Modified: Wednesday, 17 June 2009
Relying on our information - our commitment to you
We are committed to providing you with advice and guidance you can rely on, so we make every effort to ensure that what we give you is correct.
If you follow our advice or guidance and it turns out to be incorrect, or it is misleading and you make a mistake as a result, we will take that into account when determining what action, if any, we should take.
Some of the advice and guidance on this website applies to a specific financial year. This is clearly marked. Make sure you have the information for the right year before making decisions based on that information.
If you feel that our advice and guidance does not fully cover your circumstances, or you are unsure how it applies to you, contact us or seek professional advice.
Copyright
© Commonwealth of Australia
This work is copyright. You may download, display, print and reproduce this material in unaltered form only (retaining this notice) for your personal, non-commercial use or use within your organisation. Apart from any use as permitted under the Copyright Act 1968, all other rights are reserved.
Requests for further authorisation should be directed to the Commonwealth Copyright Administration, Copyright Law Branch, Attorney-General’s Department, Robert Garran Offices, National Circuit, BARTON ACT 2600 or posted at http://www.ag.gov.au/cca.