DEWS and Australian Tax: What Happens When You Return Home?
If you have worked in Dubai, particularly in the DIFC, you may have built up a balance in the Dubai Employee Workplace Savings (DEWS) scheme. Australians returning home from the UAE commonly ask whether Australia will tax their DEWS balance. The answer depends on your specific circumstances. There is currently no direct ATO guidance on the Australian tax treatment of DEWS. However, based on the structure of the arrangement, there are a number of key principles that are likely to be relevant.
What is DEWS?
DEWS replaced the traditional UAE end-of-service gratuity with a funded savings plan. Employers contribute 5.83% of salary for the first five years of service and 8.33% thereafter. These contributions are invested in a range of underlying funds, and the accumulated balance is paid out when employment ends.
Unlike the historical gratuity system, DEWS is not simply a fixed entitlement. It is an invested balance that grows over time and held in a pooled investment structure.
How might Australia tax DEWS?
Australian tax law and ATO guidance do not specifically address DEWS. As a result, the treatment requires a characterisation of the arrangement.
Based on its features, practitioners commonly analyse DEWS as a foreign investment or trust-type arrangement. They often consider the foreign trust provisions in s99B ITAA 1936 to be relevant. This is mainly due to the stringent requirements to fall within a ‘foreign superannuation fund’. Our view is DEWS entitlements would not meet these criteria.
On the basis that s99B applies, the general approach would be:
- You would typically treat employer contributions as corpus rather than assessable income, provided you can support this with evidence.
- Australian tax law generally treats investment earnings as assessable when an Australian tax resident receives them.
This reflects the broad operation of s99B, which is designed to bring accumulated foreign income to tax when it is ultimately distributed to a resident taxpayer.
The key issue: no clear split between contributions and earnings
In theory, the distinction between contributions and earnings is straightforward. In practice, DEWS reporting does not provide a clear breakdown of these components.
Statements generally show contributions and balances over a period. However, they do not provide a cumulative split between total contributions and total investment earnings. Earnings are typically embedded in the unit price of the underlying investments rather than being separately identified.
As a result, it is often necessary to undertake a reconstruction exercise to estimate the portion of the balance attributable to contributions versus earnings. The reliability of this exercise will depend on the quality of the available records.
Timing is critical
The Australian tax outcome depends on whether you are an Australian tax resident at any time during the income year in which you receive the DEWS payment.
Under s99B ITAA 1936, where applicable, may include amounts from a foreign trust in your assessable income if you are a resident at any point in that income year. This can apply even if you were a non-resident when you received the payment.
As a result, receiving the DEWS balance while you are still a non-resident does not necessarily prevent Australian tax from applying. If you later become an Australian tax resident in the same income year, Australia may still tax the earnings component of the DEWS payment under this analysis.
To reduce the risk of Australian tax exposure under this approach, generally, you should ensure you receive the DEWS payment in an income year in which you are not an Australian tax resident at any time. This is often misunderstood. The relevant consideration is not when the entitlement arose or when employment ceased. Instead, it is whether you are a resident at any point during the income year in which the payment is received.
Limited strategies exist, and you need to consider them well before returning to Australia.
As noted above, Australian tax treatment of DEWS is not settled. The application of s99B is based on a reasoned analysis rather than specific guidance. On that basis, the following approaches may assist in managing potential Australian tax exposure.
From a practical perspective, it is generally preferable for the DEWS balance to be both paid and received in an income year in which you are not an Australian tax resident at any time. This reduces the risk of the amount being assessable in Australia under a foreign trust analysis.
However, simply receiving the DEWS balance before physically returning to Australia may not be sufficient if you become a resident later in that same income year.
Moving investments to a cash or low-risk option prior to withdrawal may help reduce further investment gains within the fund. Although, it does not eliminate potential tax exposure in respect of gains that have already accrued.
If you receive the payment in an income year while you are an Australian tax resident, you may possibly reduce the taxable portion by identifying the amount attributable to employer contributions and treating the remainder as accumulated earnings. In practice, this often requires a reconstruction exercise based on available contribution records. The outcome will depend on the quality and completeness of the supporting documentation.
What happens if you can’t evidence the contributions?
If you fail to adequately document the contribution component, you may risk having a larger portion of the DEWS balance treated as assessable. Maintaining and obtaining appropriate records is therefore an important part of managing the Australian tax position.
Practical takeaway
Individuals with DEWS balances who are planning to return to Australia should take steps in advance to understand their position. This includes confirming the balance, obtaining contribution history, and carefully managing the timing of any withdrawal.
Returning to Australia before the DEWS balance is paid, or within the same income year as receipt, may result in unintended Australian tax consequences depending on how the arrangement is characterised.
Conclusion: DEWS and Australian Tax
The Australian tax treatment of DEWS is not specifically addressed in legislation or ATO guidance. It requires a reasoned analysis based on the structure of the arrangement.
In many cases, the outcome will depend on timing, residency, and the ability to distinguish between contributions and earnings. Given the potential for different interpretations and the risk of unexpected tax outcomes, it is important to obtain advice before returning to Australia.
Contact Us
Atlas Wealth Group regularly advise returning expatriates on DEWS and similar offshore savings arrangements. Managing your financial affairs across borders is a complex space, and having the right support can make all the difference. We specialise in supporting Australian expats with cross-border tax planning, superannuation, and wealth management. Contact us to arrange a consultation with a qualified adviser who specialises in Australian expat financial planning to get personalised guidance tailored to your circumstances.
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Disclaimer: This article is intended for informational purposes only and does not constitute legal or financial advice. Individuals should consult licensed professionals when seeking guidance regarding their financial circumstances.