U.S. & Australia Superannuation Tax Guide: Is it Taxable?
U.S. Tax on Australian Superannuation: The U.S. Tax on Australian Superannuation Funds analysis is difficult — and the IRS has not made the taxation of superannuation any easier. We will summarize the Australian Super Fund and IRS tax rules, including:
- U.S. Tax Treatment of Australian Superannuation
- Whether the Australian Super is taxable in the U.S.
- Is the income Taxable
- Is the growth taxed
- Do I include the Superannuation on a U.S. Tax Return
U.S. Tax on Australian Superannuation
The U.S. Tax on Australian Superannuation is a complex analysis, since the Super has many components, including:
Is Australian Super a Retirement Fund or Social Security?
The superannuation is most likely a retirement fund.
Please visit our separate article on Superannuation and U.S. tax treatment for a comparison of the Superannuation to other forms of foreign mandatory retirement.
In that other article, we developed our own original analysis of Australia Superannuation vs. Singapore CPF to provide some perspective on the different tax positions.
Is Superannuation Reportable to the U.S.?
*There are also Australian Superannuation account disclosure requirements (FBAR & FATCA), but you may refer to our separate article on Super Reporting to assess your disclosure requirements.
Is There a U.S. Australia Tax Treaty?
Yes, BUT the treaty is silent on the specific issue of Superannuation.
What is an Australian Superannuation Fund?
Here is a quick run of the basics:
Superannuation is a form of mandatory or compulsory retirement. It is a pension that has components similar to both a 401K and Social Security.
A superannuation is simply a compulsory form of retirement. Many countries have Superannuation Funds, but the Australian Super is one of the most popular superannuation funds. As provided by the Australian Securities and Investment Commission:
It’s similar to a managed fund where your money is pooled with other members’ money and invested on your behalf by professional investment managers.
Generally you will not be able to access this money until you retire. Your employer will make contributions to your super fund and you can top it up with your own money.
The government may also make contributions if you are a low income earner. Most people can choose which super fund they’d like their super contributions paid into. For most people, your employer must pay an amount equal to 9.5% of your salary into your super fund account.
This is on top of your salary or wages. Over the course of your working life, these contributions from your employer add up, or ‘accumulate’, which is why they are known as accumulation funds. Your super money is invested by your super fund so you will earn investment returns on the money. There are several different types of superannuation funds.
What Makes the Superannuation Analysis so Complex
The main reason why the analysis of U.S. Tax on Superannuation Funds is difficult, is because the Australia U.S. Tax treaty is silent as to “supers.”
In contrast, the U.S./U.K. tax treaty plainly spells out how contributions by a Foreign Employer to a Foreign Retirement are taxed in the U.S. (read: U.K. Foreign pension contributions can usually be excluded on a U.S. tax return).
To date, the IRS has not issued any definitive memoranda, as it has for other retirement, such as CPF (Singapore) and RRSP (Canada).
Is Australian Superannuation Income Taxable (in the U.S.)?
Since there is no definitive rule, we have prepared a detailed summary of common questions and answers to assist you:
Do I Include the Superannuation on a U.S. Tax Return?
Yes, you include an Australian Super on your Tax Return. The two main components of the superannuation fund are:
- Reporting the Superannuation on the FBAR, FATCA, PFIC, etc.
- U.S. Taxation – Contributions, Growth, and Withdrawals.
Are Employer Contributions Taxed?
The common example we handle is when a U.S. Person earns income from an Australian employer, and money is being deferred by the employer, and on behalf of the employee into the fund.
As of now, there is no specific rule designating the contributions excluded from U.S. Tax.
But, presuming that the Super is a pension instead of Social Security, then unlike the US/UK Tax Treaty for example (Article 18, Pargaraph 5), the Australia/US Treaty does not specifically identify U.S. employer contributions on behalf of a U.S. Person employed in Australia for an Australian retirement fund as non-taxable in the U.S. — as it does in the U.K. Tax Treaty.
Undistributed Gains from a Superannuation
The big question will be how are non-distributed gains in your superannuation fund taxed in the United States. The general proposition by most experienced specialists is that the growth is not taxable, unless the person is an HCE.
If the employee is considered to be an HCE (Highly Compensated Employee), the rules are different, and the growth may be taxable.
Personal Contributions to Australian Superannuation
Personal Contributions are not mandatory, but if the employee makes personal contributions there may be some additional tax benefits, but those benefits do not usually translate to a U.S. Tax Benefit
These questions we receive tend to be a bit more complex:
Is Australian Superannuation a Foreign Grantor Trust?
The general position that the Super is an employer’s trust (unless the employee has self-contributed more than the employer) and form 3520 and 3520-A is not reported. Instead, form 8938 is used to report the Super. (Exceptions, exclusions, and limitations apply).
Is an Australian Superannuation Fund PFIC (Form 8621)?
PFIC is a Passive Foreign Investment Company. Generally, the Super is not considered a PFIC, but depending on various different factors, the Super can transform into a PFIC, and then may require a Form 8621 and/or 3520 and 3520-A.
Does Foreign Financial Asset include “Australian Superannuation” (Form 8938)?
Yes. A Form 8938 Foreign Financial Asset would include an Australian Superannuation Fund.
Are Withdrawals from the Australian Superannuation Taxable?
Generally, they are taxable — subject to issues of withdrawing principal, which is a return of basis — and not taxed, since it is not income. If you became a U.S. person after your contributions began, you may require a forensic analysis to assist with which portion of each withdrawal is taxable, or not — and if there will be any U.S. on Australian Superannuation Funds.
How Much Tax Do You Pay on Australian Superannuation Withdrawal in the U.S.?
A person will gross-up their retirement income as regular income, and then their taxes due will be based on their progressive tax rate. Foreign Tax Credits may apply.
Is You Super out of U.S. Tax & Reporting Compliance?
Whether it is because you did not you had to report foreign accounts, thought you were below the threshold for filing, did not realize non-bank accounts were required to be reported, and/or have other unreported income, accounts, investments or assets – we can help.
Superannuation Tax Lawyers – Golding & Golding, A PLC
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.