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. Continuing 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.
However, please bear in mind the following comments. As we discuss elsewhere in more detail, from a tax perspective it is 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, that anyone with a self managed superannuation fund (SMSF) who is proceeding overseas for a period of more than two 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.
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 other suitable superannuation funds. 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 to make 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 accessible on the basis of a minimum number of years contributions - and many expatriates will fail to qualify in this regard.
2. Discontinuing 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 the US 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 the expatriates 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 maange your forex exposure carefully.
Remitting Funds into Superannuation - Obtaining advice and some Considerations
As said, it remains possible for Australian expatriates to make contributions into super and we can assist in establishing an appropriate fund if, for some reason, you have no existing fund or it is inappropriate for some reason. Advice is also available in terms of how to most cost effectively transfer foreign currency into the fund and also the investment profile of the fund. Please use our Inquiry Form to request details to arrange advice and note that you would be provided with a fee quotation in advance of any advice or services being provided..
Note that whether making contributions from overseas is necessary or advantageous to you will be driven by a range of factors, including:
- The amount of funds you have available to contribute now and in the period until retirement
- The period of time until you intend to become resident in Australia.
- Whether you have a spouse or partner, since this doubles the available cap
- Your age and that of any spouse or partner; differences in age may drive different contribution approaches because your access ages for superannuation purposes will be different, and
- The nature of your current investments and whether it might be possible or practicable to transfer them "in specie" into an Australian superannuation fund.
Regardless of whether there are large sums at issue, or otherwise, the benefits under the new superannuation regime makes it essential that every expatriate with the intention of returning to Australia reviews their own position and seeks professional advice as early as possible.