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Super and US Taxation
US Tax Treatment of Superannuation Earnings
Part of the Foreign Account Tax Compliance Act (FATCA) requires that US tax residents, citizens and permanent residents (green card holders) provide details of their foreign assets, subject to some minimum values, and indicate where the income appears in their US tax return.
In practice, it is often been the case that Australian expats in the US have not reported their Australian superannuation holdings, or superannuation income. That approach is understandable from a number of perspectives, but it is going to be much more difficult to sustain, both for individuals, their tax advisors and employers, given the new FATCA/FBAR reporting requirements and the significant penalties they include.
Almost no foreign pension plans will be complying or qualified pension plans for US tax purposes, as the legislation requires that the fund or plan needs to have been created or organized in the United States. The precise US tax treatment of foreign funds is highly complex and may be dependent on the type of pension fund involved - 1) employer sponsored and funded defined contribution plans 2) defined benefit plans funded by employer contributions 3) personal pension plans, funded by individuals; and 4) unfunded plans which are maintained by an employer.
This is a serious and complex area which could have significant, negative implications for Australians working in the US, or those with dual citizenship or permanent residency (green card) unless relief is available under the Australia/US Tax Treaty provisions. Expats with international employers should seek clarification on their position, if it hasn't already been provided, and others should seek specific tax advice regarding their reporting obligations and potential exposure. Specialist tax advised is recommended.