Taxation of overseas super and pension transfers

Overview of Australian Taxation rules

Super lump sums transferred from overseas super funds into
Australia are taxed in Australia at varying rates depending upon:

1. When the transfer is received in Australia (before or after
   six months of Australian residency)


2. Whether your client makes an election regarding
   ‘applicable fund earnings’


3. The non-concessional contribution caps, and


4. The age of your client in the financial year the transfer
   occurs (this will affect contribution caps and work
   test requirements).

Payments made within six months
of Australian residency

Overseas super payments (including fund-to-fund transfers
and cash withdrawals) paid within six months of becoming
an Australian tax resident are not subject to tax in Australia.
A direct transfer of overseas super into an Australian super
fund is a super contribution and therefore:

• the client must meet the new contributions acceptance
  standards that apply from 1 July 2007, and


• the amount transferred is preserved in the Australian fund
  
  until the client has met a condition of release.

100% of a direct overseas super transfer received within
six months of Australian residency is a non-concessional
contribution and counts towards your client’s non-concessional
contribution cap:

• clients under age 65 in the financial year: cap is $450,000 in
  a three year period


• clients age 65 or over: cap is $150,000 in the 2010–11
  financial year (indexed to average weekly ordinary times
  earnings (AWOTE) in $5,000 increments).

While the amount of the transfer forms part of the tax-free
component of your client’s Australian super benefit, any earnings
on the transfer form part of the taxable component and may be
subject to tax if withdrawn before age 60. If your client exceeds
their relevant non-concessional contribution cap, the excess will
be taxed to the individual at 46.5%.

Payments made six months or
more after Australian residency

If your client has been an Australian tax resident for more than

six months at the time of payment, part of the payment is
assessable in Australia. The part that is assessable is effectively
the growth in value of your client’s overseas benefit from the
date they became an Australian resident to the date of payment.
This amount is known as ‘applicable fund earnings’. This taxation
treatment applies regardless of whether your client directly
transfers the overseas super payment to an Australian super
fund or receives it in cash.

For those who are not currently yet Australia Permanent residences, I suggest you contact a registed migration agent for an Australia Visa Assessment