How Your Australian Superannuation Is Going to Affect Your US Tax Return

by | Mar 27, 2018 | Finances for Expats

How Will Your Australia Superannuation Affect Your US Tax Return

I have been searching and searching and searching for a definite answer when it comes to Australian Superannuation, and how it affects taxes for US expats. Unfortunately, the more I research I did, the more confusing things got.

I am going to summarize what I have found online here for you.

Big Fat Disclaimer: I am not a tax expert or an accountant. Be sure to research and confirm all information listed below. I have included links to where I found the information online. It is your responsibility that your taxes are filled out correctly.

I highly recommend talking with a tax accountant, specifically someone who is familiar with expat taxes.

Taxes for Expats has agreed to give Sydney Moving Guide readers a $25USD credit (promo code “downunder”) towards any of their services.

Australia's Hybrid Retirement Fund

It seems that the IRS is not quite sure how to handle Australian Superannuation because it is more of a hybrid retirement structure with social security and private retirement funds. For a very long explanation, read Moodys Gartner's blog post on US taxation and Australian Superannuations.

The IRS does not consider Australian Superannuations as social security or a qualifying tax-deductible fund like a 401K, but instead as part of your income even though you will not be able to access your super until you are retirement age or when you leave Australia if you have a temporary visa or working holiday visa.

Contributions to your superannuation fund should be reported as income on your US tax return even though contributions are taxed in Australia. Certain individuals, Highly Compensated Employees, also have to pay tax on the accumulated non-distributed growth of their super.

The fact that super contributions go into a private retirement fund confuses how to report these funds when filing US taxes as an expat.

Are Australian Superannuations Employee Benefit Trusts or Foreign Grantor Trusts?

An employee benefits trust is much easier to deal with and less paperwork than a foreign grantor trust.

For your super to qualify as an employee benefits trust, your contributions to your super must be equal to or less than your employer's contributions. Just to play it “safe,” some tax consultants recommend never contributing more than 50% of your employer's contribution.

If your super qualifies as an employee benefits trust, then you will need to report it, along with any other foreign assets, once the assets reach the value threshold for Form 8938. I have a whole other post all about Form 8938 that you also need to read.

Your super is considered a foreign grantor's trust if you contribute more than your employer or you can manage the fund and decide on the fund investments, i.e., the fund is self-managed.

If your super is a foreign grantor's trust, you will have to file a whole list of other forms such as Form 3520, Form 3520A, Form 8621 as well as Form 8938, and FBAR regardless of the value of the grantor's trust.

As you may have guessed, it is way more complicated than an employee benefits trust.

I need to add a few more points on supers and US taxes.

Other Key Points About Australian Superannuations and US Taxes

Superannuation income doesn't qualify for Foreign Earned Income Exclusion. You can, however, use the Foreign Tax Credit to offset any US tax you pay on the income from your super fund.

Highly Compensated Employees are taxed on super contributions and any earnings of the fund such as dividends, interest, stock gains (both realized and unrealized), as well as any other kind of income generated by the fund.

A highly compensated employee is anybody who has earned at least $120,000 USD or had owned at least 5% of the business during any period in the present year or the prior year, without regard to compensation received or earned.

I would strongly recommend contacting a tax professional before your super reaches Form 8938 threshold value, or if you are a Highly Compensated Employee or self-employed and making super contributions.

Australian Superannuations and FBAR

If your super is considered a foreign grantor trust, it must be reported on an FBAR regardless of the value.

When to report a super that is an employee benefits trust on an FBAR is more confusing.

If you own 50% or more of the super’s assets, then you will be required to file an FBAR. If you own less, you are not required to report it on your FBAR. Chances are your super is part of a larger fund, and you will not own 50% or more.

Ready to Get Started with Your Move to Australia?

Australia Moving Checklist Download

Australia Moving Checklist

39 pages, packed full of resources you need to kick start your move to Australia. Plus invite-only access to my Private Facebook Group with over 2,200 members. The group is a great place to get answers to all your questions, from visa applications to moving with pets and schools. Join us!
Transferring Money to Australia from Overseas

Lock-In Your Exchange Rate

Did you know the Australian dollar is a commodity currency? This means the value of the Australian dollar is linked to the price of iron ore and other Australian exports. It also means that it's HIGHLY VOLATILE! When a good rate comes along, you need to be ready to jump on it and lock-in that exchange rate.
International Moving Companies

Have You Started Packing Yet?

No, not yet? Still got several months to go? Ok, but have you at least started thinking about what you're taking? Maybe even started a list? The truth is you don’t need to know what's going with you before getting your shipping quote. Why? Scheduling a shipment to Australia can take as long as 6 months.
Moving to Australia Banking for Expats

Open Your Bank Account

In 5 minutes or less, you can open both a checking and savings account BEFORE you move to Australia. There are only 3 things you need to get started.
1. Your passport and visa details.
2. Know where you're going to live.
3. Be arriving within the next 3 months.
*This link will take you to Commonwealth Bank of Australia's special accounts for newly arriving expats and migrants. Commonwealth Bank is a sponsoring partner of Sydney Moving Guide.

About the Author

Lauren

Hi, I’m Lauren, and I've helped thousands of people from all over the world move to Australia since starting my blog back in 2009. You can read more about me here, but Sydney Moving Guide isn't about me. IT'S ABOUT YOU. So, I have one question for you. How can I help you with your move to Australia? Let me know in the comments below and don't forget to grab my moving checklist before you go.

Related Posts

Looking for Something Specific?

0 Comments

Leave a Reply