You’ve Got Foreign Super – Now What? Part 2 – Transferring to an Aussie Fund
In Part 1 of this series, we explored Option 1 – transferring foreign superannuation or pension benefits into the Australian superannuation system, including the eligibility requirements and the key tax implications.
To recap, we noted that transferring benefits from a foreign superannuation fund into an Australian superannuation fund is only available where:
the overseas fund meets the definition of a “foreign superannuation fund” under Australian law; and
the rules and regulations of the overseas fund permit a transfer to an Australian superannuation fund.
The tax implications of transferring your benefits from a foreign superannuation fund depend on a range of considerations. Broadly, transferred amounts may be treated as:
non-assessable foreign fund amounts, which count towards your non-concessional contributions cap;
assessable foreign fund earnings, which count towards your concessional contributions cap; and/or
applicable fund earnings, taxed either personally or within the receiving superannuation fund.
Where Option 1 is not available or optimal from a tax or practical perspective, Option 2 may warrant consideration.
In this continuation, we examine Option 2 – withdrawing your overseas pension/superannuation as a lump sum, and the circumstances in which this approach may be available or preferable.
Option 2: Withdrawing a Lump Sum
The second option is to withdraw your benefits from the overseas fund as a lump sum. This amount can generally be paid either:
directly to you; or
to another entity at your direction (for example, an alternative investment structure).
The availability of this option depends on:
the rules of the overseas fund; and
the laws of the country in which the fund is established.
For example, some overseas pension systems impose strict limitations on withdrawals, including:
minimum retirement ages;
restrictions on early access; or
exit taxes or penalties for withdrawals before a prescribed time.
Accordingly, it is necessary to first confirm whether a lump sum withdrawal is permitted under the rules and regulations of the overseas fund.
Tax Implications of Option 2 – lump sum withdrawals
For Australian tax residents, foreign income is assessable unless a specific exemption applies.
Under Australian tax law, a lump sum withdrawn from a foreign super or pension fund may be treated as a distribution from a foreign trust, which means all or part of the amount may be subject to tax. Specifically, section 99B(1) of the Income Tax Assessment Act 1936 can assess an Australian resident on distributions from an overseas trust that have not previously been subject to tax in Australia.
Importantly, this does not mean the entire lump sum is automatically assessable. The tax outcome can vary significantly depending on various factors, such as:
when you returned to Australia and became an Australian tax resident;
how long the benefits accrued before and after Australian tax residency commenced;
the nature and classification of the foreign fund; and
whether Australia and the foreign country have a double tax agreement.
In addition, there may be tax payable in the foreign country. Advice should therefore be sought from a tax professional in that country.
Consequently, care should be taken when timing a lump sum withdrawal.
What if neither Option 1 nor Option 2 is available?
In some cases, neither transferring the funds to an Australian superannuation fund nor withdrawing them as a lump sum will be possible or desirable. In such circumstances, an alternative approach may be to leave the benefits in the overseas superannuation or pension fund, at least while permitted to do so.
This may be appropriate where:
withdrawal restrictions apply;
transferring or withdrawing would trigger adverse tax consequences; or
the foreign fund continues to offer favourable investment or tax treatment.
It should be noted however, that retaining funds offshore can also introduce ongoing complexity, including foreign tax compliance obligations, currency risk, and estate-planning considerations.
You’ve Got Foreign Super – Now What?
In summary, Australians returning home with overseas superannuation or pension benefits typically face two main options, each with distinct legal and tax considerations.
The table below provides a high-level comparison:
|
Option |
Considerations |
Advantages |
Disadvantages |
|
|
1. |
Transfer overseas retirement savings into your existing Australian superannuation fund |
- Fund must qualify as a foreign |
- Concessional tax treatment on earnings |
- Access generally restricted until a condition of release is met |
|
2. |
Withdraw overseas retirement savings as a lump sum and bring it into Australia personally |
- Overseas fund must allow for lump sum withdrawal; and |
- Immediate access to funds |
- Possible foreign exit taxes or penalties |
In conclusion, there is no one-size-fits-all answer to dealing with overseas superannuation or pension benefits. The optimal strategy depends on:
The type of foreign fund involved;
The jurisdiction in which it is held; and
Your broader tax and retirement planning objectives.
The key is understanding your options before acting, because once a transfer or withdrawal is made, it is often irreversible.
Phil Broderick
Principal
T +61 3 9611 0163 l M +61 419 512 801
E pbroderick@sladen.com.au
Philippa Briglia
Special Counsel
T +61 3 9611 0174 | M +61 449 404 801
E pbriglia@sladen.com.au
Andrea Lin
Lawyer
T +61 3 9611 0189
E alin@sladen.com.au
