The most common question we receive from Americans in Australia is: “How do I report my superannuation fund on my US tax return and is it taxable?”
US taxation of superannuation is relatively complex and the IRS hasn’t been 100% clear on how it is treated or how it should be reported. But David McKeegan, co-founder of Greenback, is here to give you an overview of the most important things you need to know in order to properly report superannuation on your own taxes.
Hi, everybody. My name is David McKeegan. I’m with Greenback Expat Tax Services. Our question today is: How do I report my Australian superannuation fund on my taxes, my FBAR, and FATCA Form 8938?
Unfortunately, the IRS has not been very clear about how superannuation funds should be reported. I’ll go through the options and that should help you make a decision on how you want to report it on your own taxes. Most often, Australian superannuation funds are treated as either a grantor trust or an employee benefit trust. Most often it would be the latter.
A superannuation fund is not considered a qualified retirement plan by the IRS. This means that the contributions are not deductible for your income when calculating your taxable income. We’ll get more into that in a moment.
The other thing that you need to know is that if you were deemed to have control over the trust, and again, the IRS is not crystal clear on what control means, but control can include simply having decision making power on where the assets are invested, then the fund would be considered a foreign grantor trust, not an employee benefits trust. This will trigger additional reporting requirements by the IRS.
Let’s look at some of the detail here. You have to report your superannuation fund on the FATCA Form 8938 if your total foreign assets, including the superannuation fund, meet the thresholds. Now if you’re living overseas, the threshold is $200,000 at any point during the year, or $300,000 on the last day of the year. That’s for somebody who’s single and living overseas. If you’re married, filing jointly, those figures double, so it’s $400,000 and $600,000 if you’re living overseas.
Now whether you were taxed on the contributions or growth of the fund depends on whether you’re considered a highly compensated employee. Either way, you’re going to be taxed by the US on the contributions to the superannuation fund. But, if you earn over $150,000 a year, or you own more than a 5% interest in the business, then you’re going to be considered a highly compensated employee and your calendar year superannuation growth, so any interest, capital gains, all that, realized or not realized, as well as any contributions to your superannuation fund, will be taxable in the US. If you’re not considered a highly compensated employee, then it’s only your contributions to the superannuation fund that would be considered as compensation on your US tax return, and again, could trigger taxable income.
Now, with the FBAR it’s fairly simple. The most conservative approach is to report your superannuation fund on your FBAR. Now there’s an exemption for reporting trusts on the FBAR where the individual owns less than 50% of the assets in the trust. If you are part of a large superannuation fund you’re unlikely to own more than 50% of the fund’s total assets, so you could use that as an exemption from having to report this on your FBAR.
Again, if your superannuation fund is considered a foreign grantor trust, then it would need to be reported on your FBAR. Again, the most conservative approach is to report your superannuation fund on your FBAR and also on your form 8938. You don’t necessarily have to. Again, if it’s considered an employee benefits trust, and you own less than 50% of the assets, then it’s possible you don’t have this reporting requirement, but the IRS has not been very clear about how this is treated. The FBAR and the FATCA forms, there are reporting requirements but there’s no tax involved with that. Just because you have to report these accounts doesn’t mean you’re taxed on them.
Generally speaking, it’s a better idea to report these accounts than to not report these accounts. But again, a lot can depend on your specific situation, so if you have questions, please let us know and we’ll be happy to look at at your situation specifically and give you a custom answer for you. Thank you very much for listening, and if you have any questions about the US taxation of superannuation, please let us know.