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Australian Taxation of Foreign Pension Transfers

What taxes apply to Foreign Pension Transfers?

Some overseas pension funds, specifically those that meet the definition of a "foreign superannuation fund" (FSF), such as those in the UK, can be transferred free of any tax into an Australian superannuation fund within six months of an individual becoming an Australian resident. This is a very short time frame and there will often be occasions where processing and administrative requirements cause the transfer to conclude after the six month deadline.

If this happens then, at the option of the individual making the transfer, any growth in the fund which has occurred after residency can be taxed within the receiving super fund at a rate of 15%, rather than at the individual's marginal rate. Therefore, the cost attaching to any delay in effecting a transfer needn't be as significant as many individual's assume.

Other funds that don't meet the ATO's definition of a "foreign superannuation fund" (FSF), and this is currently includes the majority of pension funds in the US, Canada and Asia, may be subject to full Australian marginal tax on accrued earnings and tax advice must precede any transfer to determine whether a transfer is advantageous and, if so, the most tax effective approach to managing the process, including the timing of any transfer. For example, it might be better to carry out a transfer post retirement when income levels might be lower or before an individual again becomes an Australian tax resident.

That part of of any payment which is subject to tax needs to be calculated by a professional tax advisor and in very complex circumstances may involve a qualified actuary, if the transfer is being made from a final salary/defined benefit scheme.  In the latter case, the estimation of tax components may or may not be accepted by the ATO as appropriate; depending on the merits of each case.  We have had a number of examples where individuals have been in Australia decades before transferring their overseas pension balances - taxes need to be calculated with particular care in these situations because of the greater inherent tax exposure.

If you would like to arrange professional advice please complete the Inquiry form below providing details and you will be contacted promptly.

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