Self Managed Super Funds (SMSF)

Transferring super benefits from overseas

By Graeme Colley
Executive Manager, SMSF Technical and Private Wealth - SuperConcepts Sydney, Australia

We live in a global world and many of us have lived and worked overseas. For some, it has meant our overseas employer has made super contributions or its equivalent for us. After coming back to Australia, we find that moving super back home isn’t as easy as just jumping on a plane, as it used to be, and bringing it with you. Sometimes overseas superannuation must stay there until a person reaches a particular age or all employment has ceased.

Under the Australian superannuation and tax laws, it is possible to transfer some amounts from overseas superannuation funds. However, the overseas fund needs to meet the definition of what our law defines as a superannuation fund for a direct transfer to take place.

As examples, pension funds in the United Kingdom are considered superannuation funds and benefits can be transferred directly. However, the Australian fund may be required to meet certain conditions. In contrast, some funds in the US, such as 401k plans and Individual Retirement Accounts (IRAs), do not meet the definition of a superannuation fund and a direct transfer to an Australian super fund is unable to take place. This is because the benefits available under those funds are not solely for retirement and associated purposes.

The first port of call with any transfer is to talk to the overseas fund to see whether the transfer can take place and whether there are any conditions apply. Next, it needs to be determined whether all of the overseas benefit, or only part of it, can be transferred to Australia. Finally, the tax implications both in Australia and overseas are crucial as to whether the transfer can go ahead.

From a taxation point of view, tax may be payable on some of the amount transferred to the Australian fund and in addition excess contribution tax rules may apply as well. The taxable amount is calculated as the income that has accrued on the benefit that has remained in the overseas fund since the person has become an Australian resident for tax purposes. However, if the transfer takes place within 6 months of tax residency or when foreign employment ceased, then no tax is payable on the transfer.

Any amounts that are not taxed in Australia from the overseas transfer are treated as non-concessional contributions and measured against the person’s non-concessional contributions cap. This can act as a limiting factor to whether the benefit is able to be transferred from some countries. The reason is that the amount transferred to the Australian fund may continue to be subject to the payment restrictions as they applied in the overseas country.

Transfers of UK super benefits to Australia

As mentioned above, pension funds in the UK meet the definition of a superannuation fund for purposes of the Australian superannuation and taxation law and it is possible to transfer benefits to Australia. However, anyone wishing to transfer their benefit needs to check with their UK fund to see whether the transfer is possible. This may take some time and should be done in advance of coming to Australia to maximise any taxation benefits that are available.

Prior to the transfer of the benefit, it must be ensured that the Australian superannuation fund is registered as a Registered Overseas Pension Plan (ROPS). To find out whether the Australian fund is registered, it is necessary to check on the HMR&C website1, which includes a list of all approved ROPS. There are many SMSFs registered as ROPS, but only a handful of APRA funds due to the UK requirements concerning benefit payments.

For a fund to be registered as a ROPS, it must show that any benefits transferred from the UK are subject to the same conditions for the release of benefits as in the UK. This may require an amendment to the fund’s trust deed to ensure these requirements are satisfied. In addition, limits may apply to the UK transferred amount being invested in residential property.

Once the fund has been registered as a ROPS, then the trustees are required to report certain event to the UK revenue authorities. The reason is that any breach of the registration requirements may lead to the transferred benefit held by the Australian fund being subject to very stringent penalties.

So, it is essential for individuals thinking of transferring their benefit from a UK fund to Australia to make a few checks to see whether the transfer is possible, requirements for registration as a ROPS, and understand the reporting and compliance obligations under the UK rules.

Should a super benefit be transferred from overseas?

That’s an individual decision, however, sometimes the benefits payable from the overseas fund may end up being more generous than transferring the benefit to an Australian fund. This could occur where the benefit in the overseas fund provides a lifetime indexed pension, which may not be available if the amount was transferred to an Australian fund.

In most cases any pension payable from the Australian fund would be as an account-based pension. This may not provide a lifetime’s income stream as the benefit may run out earlier depending on the fund’s performance and how quickly it is drawn down.

Transferring super from overseas funds are not as simple as it seems and depending on where the benefit is coming from, there may be limits applying to the transfer as well as tax implications.

  • SMSF News
  • Self Managed Super Funds (SMSF)
  • Superannuation
  • Tax
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