US Tax Treatment of Superannuation Earnings
In practice, many Australian expats in the US have in the past not reported their Australian superannuation holdings, or superannuation income, in their US tax returns - simply believing that it was unnecessary to report find earnings to which they have no present entitlement, much as with domestic US 401(k), 401(a), 403(b) plans and IRAs. Unfortunately, the situation is not that simple and US/Australia double tax Treaty does not include a tax deferral provision which would effectively allow superannuation to be treated as if it were a US qualifying fund. This is a fundamental issue which should be addressed as a priority in any Treaty review.
When Australian expats have approach US tax advisers regarding the treatment of superannuation, the typical response has often been that superannuation should be considered as a non-qualifying retirement plan for US purposes and a "foreign grantor trust", because superannuation funds are intrinsically trusts. If that advice were followed then contributions to super and earnings within super would need to be included in US tax returns and potentially other returns such as FBAR and FATCA. Additionally, movements between superannuation accounts, including simple rollovers could be considered as a distribution or "tax event".
Adding insult to injury, if superannuation contributions and earnings are considered as "income" then a compensating tax offset may not be available for the contributions tax - because they technically paid by the fund rather than the individual.
In summary, this is a complex area within which there is substantial disagreement regarding the treatment of super by advisers. Very few US tax advisers have an in-depth understanding of either the intricacies of superannuation or the Australian/US double tax agreement and this is an innately complex area. However, our US tax advisors do not take the view that earnings within superannuation are necessarily taxable in the US, it is very dependent on individual circumstances, and expats are urged to seek specific tax advice prior to determining their approach to the matter.
Importantly, expats with international employers who are being offered assignments to the US should seek prior clarification of their position, if it hasn't already been provided. Specialist tax advice is absolutely recommended in these circumstances and particularly if you have self managed superannuation fund (SMSF).