What to do about Superannuation when you leave Australia
Australians proceeding overseas have two broad options when it comes to superannuation; they can 1) choose to continue making contributions to their superannuation fund, in most situations, or 2) they can cease to make contributions and simply maintain the fund - and alternatively make contributions to offshore pension or investment accounts. We consider these options below in more detail.
1. Continue to make Contributions
Non-residents can continue to make superannuation contributions in Australia; the rules regarding eligibility to make these contributions in Australia apply equally to residents and non-residents.
While the above statement is correct, bear in mind the following comments. As we discuss elsewhere in more detail, from a tax perspective it is absolutely essential that Australian superannuation funds remain resident for tax purposes, or risk the possibility that they will be fully taxable on gains made within the superannuation fund. This means specifically that anyone with a self managed superannuation fund (SMSF) who is proceeding overseas for a period of more than two years (scheduled to increase to five years) - must obtain professional advice in terms of how to best manage their affairs. The choices available may include; replacing yourselves as trustees with personal representatives, moving to what is called a small APRA fund or discontinuing the SMSF and moving the funds into a public offer or retail superannuation fund where residency is not impacted by an individual's move overseas.
You should notify your fund that you are proceeding overseas and will be non-resident; bearing in mind that some funds - particularly low-cost funds – will not administer non-resident members, and you may need to make arrangements to rollover your funds into another suitable superannuation fund. In any event, you should take this opportunity to ensure that your funds are being managed cost effectively and that mechanisms exist – ideally online - which enable you (or your advisor) to make any necessary investment changes whilst overseas.
If you have been transferred overseas by your employer then it is possible that your employer fund will make provision for non-resident members. Bear in mind that your employer may be exempt from making superannuation contributions on your behalf if:
- You become non-resident of Australia for tax purposes; or
- The employing entity (company, partnership, individual etc.,) is a non-resident of Australia for tax purposes.
However, if an employee remains a resident of Australia for income tax purposes, and an Australian employing entity continues to employ them, then the employer is required to continue making contributions. Additionally, there are circumstances where an employer may request a "Certificate of Coverage" from the ATO which provides that employees are not liable to pay Social Security in the country in which they are resident - on the basis that superannuation contributions continue to be made for them in Australia. This can be very beneficial, particularly given that many Social Security benefits are only later accessible on the basis of a minimum number of years contributions - and many expatriates will fail to qualify in this regard.
However, Certificates of Coverage will not be available in relation to all countries - there needs to be a supporting bi-lateral Social Security Agreement in place between Australia and the country of residency.
How to Make Personal Contributions while Non-Resident
In terms of the practicalities, most Australian superannuation funds will only accept - with a few exceptions - contributions made by BPay or direct debit from Australian bank accounts. Any other contributions, for example made directly from an overseas bank account, will require direct prior contact with the superannuation fund in advance - if possible. This approach is usually only efficient if making a substantial contribution or arranging an overseas pension fund transfer.
At the current time, the most efficient and economic approach would involve the following process:
| Establish an OFX account, or an account with another foreign-exchange transfer specialist, to ensure that foreign currency remitted to Australia is exchanged at the most economic possible rates and is automatically forwarded to your Australian bank account. Relying upon an Australian banks to make the conversion is a very expensive option and not recommended. | |
| Either use BPay to make contributions directly to your super fund from your Australian bank account, or establish a direct debit arrangement - the latter is the easiest arrangement once established, but you need to be certain that you can maintain the regular payment levels. Contact your individual super fund to make these specific arrangements. |
2. Discontinue Superannuation Contributions
Many Australians proceeding overseas discontinue their contributions to Australian superannuation, for a variety of reasons, including:
- Many developed environments, such as the US, UK, Canada and continental Europe have very sophisticated pension systems which typically include tax incentives for participation – with contributions often being tax-deductible. On a stand-alone basis the systems may offer much better earning power than making (non-tax deductible) contributions to Australian superannuation. They are even more attractive in situations where the pension funds are transferable to Australia on an attractive tax basis, as currently applies in relation to the UK pensions in certain circumstances, or if withdrawals can be arranged on a tax effective basis. The latter can include US pension funds but specific tax advice is required, ideally before the individual leaves the US.
- In other environments, such as the Middle East, it may be much more attractive to maintain investments outside of Australia in a zero tax environment, and then remit those investments into superannuation at a later date – often coinciding with an expatriate's return to Australia. But bear in mind that recent changes to super contribution caps make this process more difficult for larger amounts and you need to manage your currency exposure carefully.
If you would like to arrange professional advice please complete the Inquiry form below providing details and you will be contacted promptly.