Superannuation

International Retirement Structures - Tax Effective Savings

Superannuation structures within Australia provide a tax effective environment within which to save for retirement. However, it provides a low tax environment only within an Australian context - with both contributions and earnings still attracting tax.

Depending upon your personal circumstances, including the host country in which you are located, whether you intend to pursue a long term expatriate career and your retirement plans - it may be beneficial for you, and your employer, to consider participation in an International Retirement Plan.

The benefits of participation in an International Retirement plan can typically include:

• Investment earnings being generated in a low, or no tax, regime.
• Portability, with expatriates potentially remaining members of a single fund throughout their working life in a variety of locations offshore.
• Flexibility to allow the expatriate to choose their own investment funds, or for an employer to appoint an investment manager.
• Relatively simple, outsourced, online administration for employers which still allows them to determine vesting and retirement guidelines

Before deciding to pursue such an option - whether as a substitute for Australian superannuation or as a "top up" in addition to contributing to those funds - you must receive appropriate professional advice to ensure that there is an appropriate fit for your circumstances.

If you ask why participation in these structures might be preferred to simply maintaining an overseas investment account, there are a number of tax planning advantages associated with foreign superannuation funds. If the superannuation fund is properly set up, on return to Australia the member's benefits can remain offshore and continue to grow tax free - whereas simple investment accounts will normally attract taxation under the Foreign Investment Fund provisions, including taxation of unrealised capital gains.

These funds also provide easy access to funds offshore during retirement- which is particularly advantageous to expatriates who may spend part, if not all, of their retirement outside Australia. Broadly, to qualify for these (considerable) tax-planning advantages, the fund must fulfill the requirements of an "employer-sponsored foreign superannuation fund". As the technical name suggests the fund must be:

• Employer sponsored
• Foreign, and
• A Superannuation Fund

If the expatriate returns to Australia, any lump sum payment from the fund into an Australian fund is treated like any other transfer from a superannuation fund. If made within the first six months following repatriation it will not be subject to Australian income tax.

If the expatriate withdraws directly from the account as a lump sum after the six months expires, then a personal tax liability will be payable, but only on the portion of benefit that has accrued after repatriation to Australia. However, from 1 July 2004, a more favourable tax treatment is available if the total entitlements are paid via a direct transfer into an Australian complying Superanuation fund (see the separate section on Pension Fund transfers into Australia).

Where the benefits are drawn out later as a pension (income stream), the pension is fully assessable in Australia, subject to an annual tax free "deductible amount" relating to any personal contributions made to the fund, as well as a pension rebate of up to 15%.

Although an expatriate's participation in an "employer sponsored foreign superannuation fund" may be very beneficial, and the requirements are not extraordinarily burdensome, we stress again that professional advice should be sought prior to participation to ensure that all the legal requirements are met.

Complete the Superannuation inquiry form