Transferring Large Sums into Superannuation from Overseas

While the new Superannuation regime which came into place on 1 July, 2007 improved and simplified many aspects of superannuation the new caps on non-concessional (NC) contributions can greatly restrict the ability to transfer larger pension balances into Australian superannuation.  Australian superannuation funds are also generally prohibited from accepting more than $450,000 in NC contributions within a financial year. In addition, transferees who are 65 years of age and over do not have access to the $450,000 cap, and can contribute a maximum of $150,000 per annum, subject to meeting a work test.

There was some hope that the Government would make some allowance for expatriates, and include a higher ceiling or an exemption to reflect the fact that an expatriate may be transferring many years of pension accumulation. This has not occurred however, and there is now a perverse situation in which countries like the UK will allow the transfer of much higher sums out of the country (to a QROPS and subject to no taxation within an individual’s lifetime allowance) but this cannot be accepted by the Australian fund in one transfer. Additionally, when the expatriate has become tax resident, they may find that the balances which they have accrued overseas (and are not able to remit in their entirety) are subject to taxation (including that of unrealised gains) under the Foreign Investment Fund regime if they do not fall within the definition of employer sponsored funds.
 
There are several other factors that can exacerbate the situation. For example, the first response to this situation is usually to consider the "drip feeding" or staggered payment of overseas funds into the Australian superannuation account. With large sums this can take quite a long period, but the main problem is that pension funds, particularly defined benefit schemes, will usually not support the approach and require single payment transfers. Additionally, the ability to have any transfer taxed at 15% within the receiving superannuation fund is dependent on the transferee having (sic) extinguished their interest in the sending fund. Thus, even if the sending fund was inclined to support a drip feed approach the tax consequences may be very disadvantageous. Similar issues can attach to transfer from the US (involving 401k's and IRA's), and from South Africa and Europe.

These problems are capable of being addressed by effective and detailed  planning which takes into account individual pension and tax consequences both in the sending country and Australia. This involves a qualified financial planner with years of experience in this field drawing up a proposal which precisely plans how the transfer should be made to Australia - including amounts, timing and costs - which is agreed by the client (and their adviser if appropriate) before the process is initiated.

Professional advice of this nature is an added cost but clients will be provided with both an outline proposal and quotation for professional fees before any decision is taken to proceed. Our view in this area is that we will not administer multi-year transfers of large sums without the sign off of a financial planner or similarly experienced professional - the amounts of money involved, and the complexity of the issues, require experienced and professional advice. In addition, the advantages of transferring funds into Australian superannuation normally more than compensate for the cost and time involved in proper planning.

For expatriates and migrants wanting to transfer funds, but concerned that current exchange rates are poor, there is also the potential to transfer funds into an Australian superannuation fund but leave investments and funds in your existing currency.  Giving you the option to make any conversions into AUD when you believe it is most advantageous. 

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