What are your tax consequences and tax-free circumstances?
When receiving a lump sum from a foreign super fund, Australian tax obligations require a 15% concessional tax rate unless the payment meets specific tax-free conditions, such as being received within six months of becoming a resident or terminating foreign employment
Australian superannuation fund criteria
Foreign super funds may be taxable if they do not meet Australian superannuation fund criteria, with potential issues arising under section 99B of the Income Tax Assessment Act 1936
Tax-free Lump Sum Payments
Tax-free treatment of a lump sum payment is possible if received within six months of becoming an Australian resident or terminating foreign employment, meeting specific conditions
Taxable Income after Residency or Termination
If a lump sum is received more than six months after gaining residency or employment termination, it must be included in the taxable income for that year
Know your tax consequences and tax-free circumstances as an emigrant when receiving a lump sump payment from a foreign super fund.
The withdrawal is considered a taxable income and taxed 15% at a concessional rate when residents received the lump sum from either one of the events:
- a foreign superannuation fund
- a foreign scheme for the benefit payment of retirement or death
However, problems may arise when the foreign fund doesn’t meet the eligibility requirements of superannuation fund under Australian’s law. In most cases, foreign trusts and withdrawal are taxable if they lack one of the characteristics of Australia’s superannuation fund as defined under section 99B of Income Tax Assessment Act 1936.
Tax-free lump sum payments from a super fund applies depending on when an expat was able to receive it and is able to meet all of the following conditions:
b) Within six months of becoming and Australian resident:
lump sum was received within six months of becoming an Australian resident
lump sum relates to a period when an expat were not an Australian resident OR that started after you gained Australian residency and ended before payment was received
the lump sum total doesn’t exceed the fund vested to an expat when payment was received
b) Within six months of ceasing foreign employment:
- lump sum was received within six months of foreign employment termination
- lump sum was received as a consequence of termination as an employee or holder of an office overseas
- An expat is an Australian resident during the employment period
- Lump sum is within the duration of employment period.
- Earnings are exempted from income tax in Australia
Lump sum is not exempt from tax under the law of foreign country
Tax-free lump sum payments from a super fund may apply depending on various conditions.
Foreign trusts and withdrawal are taxable if they don’t meet the eligibility requirements of superannuation fund.
What happens after six months of gaining residency or if my employment ceases?
You will need to provide the balance of lump sum that applies to the relevant fund contribution in the applicable income for the year, whether:
- your foreign super lump sum was received more than six months after gaining residency or termination of foreign employment; AND
- you were an Australian resident when you received it.
Read on Lump Sums for a Foreign Super Fund for more information.
