Australian expats could face US tax on Australian superannuation


25/10/2016 – Australian expats living in the United States could face US tax on Australian superannuation, following changes to the Internal Revenue Service’s (IRS) reporting requirements for such schemes.

In June last year, the US tax authorities released a redacted letter classifying superannuation, Australia’s state-backed pension savings arrangement, as a foreign grantor trust, whereby all realised income and gains in an expat’s super may be taxed at the personal level.

Prior to this, the IRS had never issued any definitive guidance on how supers should be classified and reported.

Due to the complexities of complying with the regulation, a number of leading super providers in Australia are now refusing to work with expats located in the US, revealed Brett Evans, managing director of Brisbane-based IFA firm Atlas Wealth Management.

“I’ve had cases where these super providers removed clients based in the US from funds as it has just got too complicated,” he told International Adviser.

IRS reporting

Although he stopped short of naming providers, Evans, whose firm specialises in providing advice to Australians living abroad, particularly in the US, said the requirement is likely to affect approximately 200,000 Australians living in the country, where over 40,000 are settled in New York alone.

Under the classification, clients will have to report their superannuation as income on their annual US tax return.

To minimise the tax burden, he instructs Australian expats to remove Passive Foreign Investment Company (PFIC) holdings in their supers, including managed funds or listed invested companies as well as Exchange Traded Funds (ETF’s) not registered in the US.

Australian expat superannuation

Super disclosures

Evans also advises clients to limit turnover in their super account to “ensure they are not crystallising capital gains frequently” or generating excessive yield/income.

Despite the US Foreign Account Tax Compliance Act (FATCA), updated last year which requires US tax residents, citizens and permanent residents to provide details of their foreign assets, exempting supers from being reported, Evans reveals many super providers are still disclosing the details of such accounts.

“As the Australian expat population in the US increases, combined with the increasing prevalence of data sharing between countries, it’s not a case of if you haven’t been caught in the past you won’t be caught in the future. Increased compliance going forward isn’t just a nice thing to do but a mandatory part of managing your finances as an Australian expat in the US,” warned Evans.

Common Reporting Standards

He expects similar requirements to be introduced for Australians living in other countries when the Common Reporting Standard (CRS) comes into force on 30 September 2018.
The move towards cross-border transparency has also been adopted in Europe with British expats living in Spain now required to declare the money they have in Malta-based recognised overseas pension schemes (Rops) that allow ‘flexi-access’ in line with the UK’s pension freedoms introduced last year.

This article originally appeared in a interview with International Adviser.

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