How Your American Expat Taxes Could Be Affected by Superannuation Changes

American Expat Taxes and Superannuation Reform

Sometimes, your US expat tax obligations can be downright complex, and this is especially true when dealing with superannuation in Australia. Already a tricky subject, new legislative reforms set to take effect on July 1, 2017, can further complicate the matter. Here’s what you should know about these changes and how they could affect your American expat taxes.

Decreased Concessional Contribution Cap and Lower Income Thresholds

With the July 1 reform, the income threshold for liability Division 293 tax will decrease to AUD $250,000 per annum and the max contribution amount will lower from AUD $30,000 to AUD $25,000 per annum.

What does this mean for US expats? US tax laws don’t usually recognize concessional employer and employee contributions to a superannuation fund as non-taxable income on your US Tax Return. Instead, both concessional contributions and earnings on these amounts will be treated as gross income to US expats and subject to American expat taxes at ordinary rates. However, the reform will now impose an additional 15% tax on concessional contributions if the US expat has a high income threshold about AUD $250,000 per year. Unfortunately, this means that this additional 15% tax could result in triple taxation for Americans abroad.

Reduced Annual Non-Concessional Contributions Cap

With reform changes, individuals under 65 will have reduced annual non-concessional contributions of AUD $100,000 per year with a three-year bring forward of AUD $300,000. Note, there is a transitional period for those who’ve made their annual contributions and triggered their three-year bring forward amounts prior to the legislative changes taking effect.

Why is this significant? Currently, individuals under 65 can make non-concessional contributions of AUD $180,000 per year with a three-year bring forward of AUD $540,000. This is a fairly significant change in the amount of after-tax contributions an individual can make to his or her superannuation fund, which means the potential need for additional financial planning.

Introduction of a New AUD $1.6m Lifetime Transfer Balance Cap

On July 1, there will be a cap imposed of AUD $1.6m on the total amount of superannuation savings that can be transferred from an accumulation account to a tax-exempt retirement account. Individuals will need to commute one or more of their superannuation income streams where they have an excess transfer balance.

How could this impact my American expat taxes? Without clarity on US tax laws, those with amounts in excess of AUD $1.6m in superannuation savings who will be transitioning to retirement or those already retired with AUD $1.6m in their retirement accounts will face a choice of two options:

  • Leave the excess amounts in their accumulation account, where earnings are taxed at a standard 15%, or
  • Withdraw the excess amounts from superannuation, which may be subject to tax for Australian tax purposes where the member is under age 60.

Both of the options above would have the ability to increase your American expat taxes liability. For Americans working overseas in Australia with superannuation funds, it’s a good idea to consult with an expat tax professional to go over these legislative reforms and how it could impact your personal tax situation. Also, be sure to check out our Australian tax guide for more helpful information.

Have Questions About Your American Expat Taxes While Living in Australia?

Our team of expat-expert accountants are here to help you understand all of your expatriate tax obligations while living your adventure abroad. Contact us today and we’ll help you navigate your tax situation as a US expat in Australia.

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