- 1 Reporting Obligations of a Superannuation Account
- 2 Types of Superannuation Accounts
- 3 FBAR (FinCEN Form 114)
- 4 Form 8938 (FATCA)
- 5 Form 3520/Form 3520-A
- 6 Revenue Procedure 2020-17
- 7 Form 5471
- 8 Form 8621
- 9 Current Year vs Prior Year Non-Compliance
- 10 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 11 Golding & Golding: About Our International Tax Law Firm
Reporting Obligations 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. While reporting supers is very complicated, it is only one aspect of Australian Superannuation. Therefore, we have developed additional resources for taxation of the Australian Superannuation and a US/Australia Tax Treaty analysis of Australian superannuation. For now, let’s focus on the reporting obligations of a superannuation account.
Types of Superannuation Accounts
There are different types of superannuation plans — and in general, there are three main categories. There is the typical private superannuation plan that a person has when they are employed at a company in Australia (such as a UniSuper account); there is the self-managed superannuation for taxpayers who want to take control and investment decision power for their superannuation investments — and then there is public superannuation, which is similar to the private superannuation except the income is generated while working for the Australian government or university. The taxation rules will also vary depending on which type of superannuation the taxpayer has. For example, pension distributions from public superannuation may be exempt under the US-Australia Tax Treaty, whereas pension distributions from private or self-managed superannuation would not receive the same benefit.
FBAR (FinCEN Form 114)
The FBAR is used to report Foreign Bank and Financial Account forms. Foreign pension plans are a type of financial account that is reportable on the FBAR, which would include the Australian Superannuation.
As provided by the IRS:
Example: Canadian Registered Retirement Savings Plan (RRSP), Canadian Tax-Free Savings Account (TFSA), Mexican individual retirement accounts (Fondos para el Retiro) and Mexican Administradoras de Fondos para el Retiro (AFORE) are foreign financial accounts reportable on the FBAR.
The list above is used for reference purposes and is not exhaustive. Thus, the Australian version of a pension plan (Superannuation) would also be reportable on the FBAR
Form 8938 (FATCA)
Form 8938 was developed in accordance with FATCA, which is the Foreign Account Tax Compliance Act. The Australian Superannuation is required to be reported on Form 8938 as it would qualify as a foreign pension plan.
As provided by Form 8938 instructions:
Value of an Interest in a Foreign Estate, Foreign Pension Plan, and Foreign Deferred Compensation Plan
If you do not know or have reason to know based on readily accessible information the fair market value of your interest in a foreign estate, foreign pension plan, or foreign deferred compensation plan during the tax year, the value to be included in determining the total value of your specified foreign financial assets during the tax year is the fair market value, determined as of the last day of the tax year, of the currency and other property distributed during the tax year to you. If you received no distributions during the tax year and do not know or have reason to know based on readily accessible information the fair market value of your interest, use a value of zero for the interest.
Form 3520/Form 3520-A
Forms 3520 and Form 3520-A are used to report gifts and trusts to the IRS. Technically, while an Australian citizen does not probably consider their superannuation to be a foreign trust — from a technical standpoint under US tax law the superannuation would be deemed a trust. The question then becomes that while the superannuation is required to be reported on both the FBAR and Form 8938 – is it also required to be reported on Forms 3520/3520-A? While there is a high likelihood that a Self-Managed Superannuation Fund may be required to be reported on Form 3520 or 3520-A, with the introduction of Revenue Procedure 2020–17, it is unclear if foreign pension/retirement plans such as private superannuation funds are reportable on Forms 3520/3520-A.
Revenue Procedure 2020-17
In general, Forms 3520 and 3520-A are designed to report foreign trusts and not foreign pension plans. Take for example Revenue Procedure 2014–55, which specifically exempts Canadian RRSPs and RRIF from having to file Forms 3520/3520-A. Chances are the Superannuation in Australia is closer to an RRSP then it would be to an offshore asset protection trust in Nevis for example. And, since the IRS is not going to create a separate Revenue Procedure for each foreign asset, there is a strong presumption that the intent of Rev Proc. 2020-17 was to avoid duplicative reporting for pension plans such as the Australian Superannuation (although it is still required to be reported on the FBAR & Form 8938). Noting, it may not apply to Self-Managed Superannuation Funds — or other superannuation funds in which the employee has made more contributions than the employer, sufficient so it would become a grantor trust.
While generally Form 5471 would not be required when reporting superannuation, if it is a Self-Managed Superannuation Fund with a PTY Limited associated with the Super or the management of the Super, then the PTY Limited may require a Form 5471.
While generally a Form 8621 is required in situations in which there is a Passive Foreign Investment Company – there are some exceptions and exclusions in situations in which the PFIC is being held within a pension plan within a treaty country.
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.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to streamlined procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead of the Streamlined Procedures. But, if a willful Taxpayer submits an intentionally false narrative under the streamlined procedures (and gets caught), they may become subject to significant fines and penalties.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
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