Australian Superannuation - An Introduction for Expatriates
Contributing to Australian Superannuation while Overseas
There are a number of factors to consider when assessing whether you should begin contributing to Australian superannuation before you return to Australia.
The new Superannuation regime, in place from 1 July, 2007 generally limits concessional and non-concessional contributions to AUD50K and AUD150K per annum respectively. People over 50 can however contribute up to a concessional limit of AUD100k until 30 June, 2012. The maximum concessional limit of AUD50K will increase in line with average weekly overtime earnings while the transitional AUD100K limit is fixed and will not increase. Further, a person may bring forward the annual limit on concessional contributions for up to two years – meaning they can contribute up to AUD450K in one year, as long as they make no contributions in the following two years.
Expatriate Australians can make both concessional and non-concessional contributions to their superannuation - although individuals with SMSF's should seek professional advice to ensure that it does not have adverse tax implications. Whether making concessional contributions makes any financial sense, given that they attract a 15% tax, depends on a number of issues, such as whether you have Australian assessable income and should also be the subject of a discussion with your tax advisor.
The general presumption though is that you should ensure that you arrive back in Australia with the maximum amount of investments tax sheltered in superannuation, rather than normally assessable for income and CGT at your marginal rate. The only major rider is that once sums are committed to superannuation they are effectively locked in.
In general, whether making contributions from overseas is necessary or advantageous will be driven by a range of factors, including:
- The amount of funds you have available to contribute now and in the period until retirement
- The period of time until you intend to become resident in Australia
- Whether you have a spouse or partner, since this doubles the available cap
- Your age and that of any spouse or partner – differences in age may drive different contribution approaches, because your access ages for superannuation purposes will be different
- The nature of your current investments and whether it might be possible/practicable to transfer them in specie into an Australian superannuation fund
The table below illustrates, in the simplest possible fashion, the time it might take to move the amounts of AUD1M and AUD2M into Australian superannuation based on scenarios where the individual is now resident and is a) single and b) has a partner to “share contribution caps”. It is presumed in both cases that only non-concessional contributions are made and that the timing of any return is known well enough in advance to make an initial non-concessional contribution of AUD150K before the tax year of return (Year 0). A rate of return of 8% is presumed on the funds – with an Australian unsheltered marginal tax rate on investment returns of 46.5%. Note that for the sake of simplicity the contribution caps have not been indexed.
The table illustrates that those who have large balances they wish to place into super, and particularly single individuals, will need to think ahead of their return to Australia – otherwise they risk having their assets unsheltered for quite a period while they are contributed on a staggered basis into superannuation. As can be seen, an initial sum $2million will take over 10 years to feed into super for a single individual. Note also that contributions within these limits can only be made by people under 65 (and up to 74 if they satisfy the work test).
Regardless of whether there are large sums at issue or not the benefits under the new Superannuation regime makes it essential that every expatriate with the intention of returning to Australia reviews their own position and seeks professional advice where necessary.
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