US Expat Tax Planning for Australian Superannuation Funds

Expat Tax Planning: Superannuation in Australia

Questions about superannuation come up quite often for US expats living in Australia, as it can be a complex process to understand how it will affect your expat tax planning. Here, we’ll break down the most important things to note about superannuation so you’ll be prepared when it comes time to file your US expat taxes.

1. Superannuation is a retirement fund.

In Australia, superannuation is the fund used to save for retirement – the money comes from contributions made into a super fund by employers, and similar to US retirement accounts, hopefully includes contributions from the individuals’ own money as well. All employees over age 18 are required to contribute to superannuation, unless the foreign employee is exempt due to a certificate of coverage in place. An employee’s investment in superannuation is both funded and vested. Read on for details about how it will affect your expat tax planning.

2. Superannuation is not a US qualifying fund.

Not unlike other foreign pensions, the taxation of superannuation by the US can be tricky. There are varying opinions as to how it should be taxed on your expatriate taxes, since the IRS isn’t able to provide clear expat tax planning guidance for every type of foreign pension plan. Typically, superannuation funds are run like trusts (either a grantor trust or an employee benefits trust), and as such, are treated that way by the US government.

You should note that superannuation is not a US qualifying fund (like a 401k is), so the contributions are not deductible when calculating taxable income. Also, there is no tax deferral clause in the US-Australia tax treaty to allow qualifying fund treatment for superannuation. You should take all of these factors into careful consideration when it comes to planning and saving for retirement in Australia.

3. You’ll need to determine if you’re a highly compensated employee.

Most superannuation plans are treated as employee benefits trust, and as such, you’ll need to determine if you’re a ‘highly compensated employee’ to know what is and what isn’t taxable for US purposes. A highly compensated employee is defined as an individual who:

  • Owned more than 5% of the interest in the business at any time during the year or the preceding year, no matter how much compensation that person earned or received
  • For the preceding year, received compensation from the business of more than $120,000 if the preceding year is 2015, 2016 or 2017, and if the employer chooses, was in the top 20% of employees when ranked by compensation

Note, the ‘business’ mentioned above is actually the superannuation fund itself.

4. You’ll need to understand the different tax treatments.

If you determined you are a highly compensated employee based on the qualifications above, you will be taxed on the contributions to the plan as well as the earnings within the plan during the calendar year. This information is typically provided on an Australian calendar year basis (with a June 30th year end), so it can be tricky to obtain and keep track of this information for your US Tax Return. Keeping quarterly statements from your superannuation fund can make this easier.

If you’re not considered a highly compensated employee, you will only need to include the contributions that you make to the plan in your US taxable income, for expat tax planning purposes. This includes your contributions and those made by your employer on your behalf. Again, good record keeping is important, as your contributions will create basis in the fund that will be US tax-free upon distribution.

5. You may need to file an FBAR for your superannuation fund.

There is an exemption for reporting trusts on the FBAR when an individual owns less than 50% of the assets in the trust – and if you’re part of a large foreign employee benefits trust, it’s unlikely you’ll own more than 50% of the overall fund’s assets. However, if your superannuation is a foreign grantor trust, you will always need to report superannuation on an FBAR. For 2017 and beyond, the FBAR deadline will follow the US tax deadline – meaning you’ll file your FBAR by June 15th along with your expatriate taxes. For 2017, there is also an automatic extension until October 16th to help Americans become acclimated to the new FBAR deadline schedule. Here are the top facts to know about filing an FBAR.

For more information about expat tax planning in Australia, be sure to check out our blog. Also, download a US expat tax guide for tips about ways to save and important deadlines.

Need Help Understanding How Superannuation Will Affect Your US Expat Tax Planning?

Our team of expat-expert CPAs and IRS Enrolled Agents can provide the expertise you need when it comes to understanding complex expatriate tax situations. Contact us today to have all of your superannuation questions answered.

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