US Expats with Australian Superannuation: Reporting, Tax & Treaty Rules

US Expats with Australian Superannuation: Reporting, Tax & Treaty Rules

Expats with Australian Superannuation

When a US expat has Australian Superannuation, they may have several tax and reporting rules to contend with. That is because foreign pension plans such as Australian Superannuation is considered a reportable account for FBAR (Foreign Bank and Financial Account Reporting) and FATCA (Foreign Account Tax Compliance Act). There may be other reporting issues as well, such as PFIC and Form 5471. In addition to the reporting rules are the tax requirements. These requirements can vary based on whether the income is contributions, growth, or distributions. Moreover, treaty elections and other treaty disclosures may impact the overall taxation of Australian Super. Let’s take a brief look at expats and Australian Superannuation. 

Disclosure Requirements of a Superannuation Account 

When it comes to foreign countries such as New Zealand and Australia, superannuation is one of the most important aspects of a person’s pension/retirement savings. The superannuation is a hybrid retirement and pension plan, with some additional similarities to US social security as well (but Australia has its own social assistance program). The focus of this article will be the reporting of the Australian superannuation on forms such as the FBAR and FATCA. Unfortunately, there is a lot of misinformation on the world wide web on matters involving superannuation, which is causing taxpayers significant (and unnecessary) stress. There are several different moving parts in motion when it comes to the taxation and reporting of superannuation in that Australia is a treaty country; there is a totalization agreement between the United States and Australia, and the recently released (and ambiguous) Revenue Procedure 2020–17  further complicates the reporting of superannuation on Forms 3520/3520-A.  The full article is available here to learn more about superannuation reporting.

The US Tax Rules for Superannuation

One of the most complex aspects of international tax law is trying to apply foreign income tax rules and laws to the United States Tax Code. This becomes a major problem in matters involving pensions and other types of retirement plans sourced in a foreign country. That is because, in a foreign country, the income is usually tax-exempt – or subject to a reduced tax rate. In addition, in most foreign countries the employer contributions are pretax, and the taxpayer does not become subject to income tax until they begin receiving distributions from the foreign pension plan.  While the taxation of Australian Superannuation is very complicated, it is only one part of the US compliance equation. The full article is available here to learn more about superannuation taxation.

US/Australia Tax Treaty Analysis of Australian Superannuation

While the United States and Australia first entered into a bilateral tax treaty back in 1982/1983 — which was updated in part by the 2001 protocol — it is still relatively bear on matters involving superannuation pension/retirement. Since the inception of the US/Australia tax treaty, superannuation has moved to the forefront of Australian pension and retirement schemes. In addition, with the globalization of the U.S. economy, it is very common for an Australian citizen who is now either a dual citizen of the United States or a Lawful Permanent Resident to have a sizable Australian superannuation. Unfortunately, unlike other more robust tax treaties such as the US/UK tax treaty – the overall tax implications for Australian superannuation have not been effectively laid out by the US government. Let’s walk through the basics of how Australian superannuation would generally be treated under the US-Australia tax treaty. The full article is available here to learn more about superannuation tax treaty analysis.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

About Our International Tax Law Firm (Golding & Golding)

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure and Australian Superannuation.

Contact our firm today for assistance with getting compliant.