The decision to live and perhaps work overseas can have a significant impact to your goals and investments. Whether you plan to retire abroad or return to Australia, many of you will have questions about how your superannuation is affected when you become non-residents for tax purposes. Common questions include:
- Can non-residents contribute to superannuation?
- Can non-residents make personal concessional contributions?
- Can non-residents receive the Government co-contribution?
- Can non-residents rollover superannuation to another country?
- How do non-residents meet a condition of release?
- How are lump sums and income streams taxed in Australia and the country of residence?
This article considers superannuation issues for people who become non-residents for tax purposes. It does not consider holders of temporary resident visas, or residency issues for self-managed superannuation funds.
Can you make super contributions as a non-resident?
Non-residents for tax purposes are subject to the same contribution rules as Australian residents. An eligible non-resident can contribute to an Australian superannuation fund regardless of overseas residence or nationality. Product providers do however commonly require that both documentation is received (such as the PDS) and the application process is completed while the person is in Australia. A non-resident must have a Tax File Number (TFN) to make a personal contribution to superannuation.
Individuals over age 65 must have met the work test to make a personal contribution; this requires the person to work 40 hours within a period of 30 consecutive days during the financial year. To satisfy this test, the individual must be gainfully employed which can include work performed overseas.
A Superannuation Fund cannot accept a member contribution if aged 75 or more.
Can non-residents make personal concessional contributions?
As a non-resident, you can potentially make a personal concessional contribution if the relevant work and age-related conditions are satisfied. Where you are an employee (for SG purposes), you trigger the employment activity test and must therefore satisfy the 10% test to claim a deduction. The employment activity doesn’t need to be in Australia, it applies worldwide.
However, when applying the 10% test, income attributable to employment outside Australia is not included in assessable income for non-residents and therefore does not count towards the 10% test. While a non-resident may be eligible to claim a deduction for a personal contribution, the deduction will only be effective in reducing tax on assessable income sourced in Australia, for example, rent from an Australian property. A deduction will be very beneficial against such income as non-resident, you are entitled to the tax-free threshold and your lowest marginal tax rate is 32.5% (2013–14).
A deduction may not always provide a benefit’ for example, against income from un-franked dividends, interest and managed investment trust distributions that is subject to a final withholding tax. Tax advice should be sought before making a personal deductible contribution, to confirm eligibility and that the contribution will provide a benefit.
Can you receive the Government co-contribution?
Non-residents may be eligible to receive the Government co-contribution if you do not hold an eligible temporary resident visa at any time during the Financial Year. New Zealand residents or holders of a prescribed visa may also be eligible. Eligibility for the co-contribution requires that 10% or more of total Australian income is from eligible income – that is, income from running a business, eligible employment or a combination of both. You may have difficulty meeting this test as income attributable to employment outside Australia is not counted in the definition of eligible income. Also note that an Australian income tax return needs to be lodged for the income year that the contribution is made.
Can non-residents rollover superannuation to another country?
Generally, Australian superannuation benefits can only be rolled over within the superannuation system and not to another country. The exception to this rule is that from 1 July 2013 it is possible to transfer benefits from an APRA-regulated superannuation fund to a New Zealand KiwiSaver Scheme. This option only applies to individuals moving permanently to New Zealand, the Australian sourced funds cannot be moved to a third country and are subject to Australian retirement rules.
How do non-residents access the super benefits?
Non-residents must meet the standard conditions of release such as retirement or permanent incapacity. Ceasing work with an overseas employer can meet the requirement of ceasing a gainful employment arrangement. Therefore, if you have reached preservation age and meet the retirement condition of release by ceasing employment with your foreign employer and not intending to become gainfully employed (anywhere in the world) for 10 or more hours per week in the future. Alternatively, the client could meet the retirement condition of release by ceasing employment with their foreign employer after reaching age 60.
How are lump sums and pensions taxed in Australia and in the country of residence?
Taxation is determined by your age, whether the benefit is taken as a lump sum or pension, the tax rules of the country of residence and any Double Tax Agreements (DTA) between the country of residence and Australia.
Lump sums – Australian taxation
For those over preservation age and under age 60, the tax free component is non-assessable, non-exempt income. The taxable (taxed) component is added to the person’s assessable income and taxed at their marginal tax rate (being the rates for non-residents). Amounts of taxable element drawn within the low rate cap ($180,000 in 2013–14) receive a rebate and are effectively taxed at 0%. For those over age 60, the benefits will be non-assessable, non-exempt income.
Lump sums – Foreign taxation
It would be prudent to confirm with a foreign tax specialist as to whether tax would be levied by the resident country on the lump sum.
The superannuation rules generally treat residents and non-residents alike, with modifications for preservation standards of temporary residents. It is under the tax rules where both differences and complexities arise for non-residents. It is prudent to have non-tax residents seek independent tax advice before drawing superannuation lump sums or commencing an income stream. Again, independent tax advice should be sought to confirm eligibility for a personal deductible contribution.
Countries that have existing DTAs with Australia
Australia has existing DTAs with the following countries (as at 20 November 2013):
Argentina, Austria, Belgium, Canada, Chile, China, Czech Republic, Denmark, Fiji, Finland, France, Germany, Hungary, India, Indonesia, Ireland, Italy, Japan, Kiribati, Republic of Korea, Malaysia, Malta, Mexico, Netherlands, New Zealand, Norway, Papua New Guinea, Philippines, Poland, Romania, Russia, Singapore, Slovakia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Taipei, Thailand, Turkey, United Kingdom, United States of America, Vietnam
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