U.S. Taxes on Departing Australia Super Payment (DASP)

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U.S. Taxes on Departing Australia Super Payment (DASP)

U.S. Taxes on Departing Australia Super Payment (DASP)

What is a Departing Australia Superannuation Payment (DASP)

The Australian superannuation system is one of the most effective types of retirement programs out there. It is similar to the 401K with more benefits because ultimately taxpayers receive their distributions from their Australian superannuation tax-free (subject to U.S. tax rules if the recipient is a U.S. person for tax purposes). Sometimes, a taxpayer may reside in Australia for a significant amount of time to accumulate Australian superannuation but is only a temporary resident of Australia, and therefore at some point, will leave Australia before becoming an Australian Citizen or Permanent Resident. One very important question for taxpayers who have accumulated superannuation is how they can receive payments or distributions from the superannuation. Some taxpayers may be eligible for a Departing Australia Superannuation Payment (DASP). Let’s look at how the DASP works:

Eligibility for a Departing Australia Superannuation Payment (DASP)

Not all residents of Australia are eligible for DASP. Essentially, it is reserved for taxpayers who are considered to be temporary residents of Australia, meaning that they have been working in Australia on a temporary visa. For taxpayers who qualify for a departing Australia superannuation payment, they may be eligible to receive a one-time payment for the full amount of their DSP (minus any taxes that are due to the Australian government).

As provided by the Australian Government

      • “you accumulated superannuation while working in Australia on a temporary resident visa issued under the Migration Act 1958 (excluding Subclasses 405 and 410)
      • your visa has ceased to be in effect (expired or cancelled)
      • you have left Australia and you do not hold any other active Australian visa
      • you’re not an Australian or New Zealand citizen, or a permanent resident of Australia (if you’re a New Zealand citizen leaving Australia permanently, you may be able to transfer your super to New Zealand).”
        • While you can’t claim a DASP until after you’ve left Australia, we strongly recommend you get all the information you need and start your application before you leave. It may be difficult for you to start the process once you have left.”

DASP Planning is Important

Some taxpayers will decide that they want to live (temporarily) in Australia but do not intend to remain in Australia as permanent residents or citizens. Thus, the reason why planning is important is that to qualify for DASP, the taxpayer cannot be an Australian or New Zealand citizen or permanent resident of Australia (subject to some limitations involving New Zealand as well). Therefore, taxpayers considering obtaining permanent residence or citizenship in Australia should be cautious to plan accordingly.

U.S. Taxes and DASP Distributions

If the recipient of the DASP is a U.S. person for tax purposes, then unfortunately may be taxed on the distribution because it is essentially a pension distribution, similar to how a taxpayer is taxed on the distribution of a 401K. Typically, taxes involving superannuation are not paid directly by the U.S. person, but rather are withheld within the superannuation fund itself during the growth period — and therefore foreign tax credits may not apply. Also,  franking credits do not apply as well.

Reproduced from the Australian Government website:

Locating your super

“If you’ve worked for multiple employers, you may have more than one super account and these may be with different super funds. If you’re not sure where your super is, you can search for it by:

Employers are required to make super contributions on a quarterly basis, so you should check with your employer that all contributions have been paid into your fund before submitting your application. If you don’t apply for your DASP, your super fund will transfer your super money to the ATO as unclaimed super money, if both:

      • it has been 6 months or more since you left Australia
      • your visa has ceased to be in effect.

You may be able to claim ATO-held super as DASP.

How to claim your super

You can apply for a DASP via either:

Before submitting your DASP application, check with your employer to confirm they have paid all the super they are required to.

Online applications

      • You can use the DASP online application system free of charge The DASP online system will automatically confirm your immigration status online with the Department of Home Affairs – you don’t need to apply for a Certification of Immigration Status from the Department of Home Affairs unless directed by your super fund. You can start and save your online application while you are still in Australia and have all the relevant information handy.
      • You can only submit a DASP application when you’ve left Australia and do not hold an active visa. For further information on visa cessation, including cancellation, once you have departed Australia, see Cancelling a visa (homeaffairs.gov.au). Take note of the information you enter when you start your online application.
      • You’ll need the same details to resume your saved application after you leave Australia.Where the value of your super money is $5,000 or more, your super fund may require certified copies of your proof of identification documents. It’s much easier to certify documents while you are in Australia. As there are specific rules on who can certify documents, we recommend you do this before you leave. Check with your super fund to confirm what documents are required. For more information on how to use the system, see Help with the DASP online application system.

Paper applications

      • For super held by a super fund, you need to complete the Application for departing Australia superannuation payment form (NAT 7204) and send one to each of your super funds. If you’re applying on a paper form, your super fund may charge you a fee depending on the value of your super money. Your super fund will also require certified copies of your proof of identification documents.
      • It’s much easier to certify documents while you are in Australia. As there are specific rules on who can certify documents, we recommend you do this before you leave. Check with your super fund to confirm what documents are required. For ATO-held super, use the Application for payment of ATO-held superannuation money (NAT 74880) and send it directly to us. There are no costs for paper applications sent to the ATO.

Super value of $5,000 or more

      • For super accounts with a balance of $5,000 or more, paper applications to super funds may require a Certification of Immigration Status from Home Affairs, which charges a fee to issue this certificate. They will email it directly to you and the super funds you nominate. Request a Certificate of Immigration Status from Home Affairs using Form 1194 Certification of Immigration Status (PDF 290KB).

Super value of less than $5,000

      • For super accounts with a balance of less than $5,000, you can provide evidence that you have left Australia and your visa has expired without completing the Certification of Immigration Status. Ask your super fund what evidence you need to provide. If you’re not able to provide the evidence yourself, your super fund may ask you for a Certification of Immigration Status from Home Affairs before they can process your application.
      • If you have held a WHM visa and haven’t applied for a Certification of Immigration Status from Home Affairs, you’ll need to provide your visa information on the paper application. This may be checked against Home Affairs records and your application may take longer to process if it doesn’t match.”

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them.

*Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

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 who 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. 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. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.