I have been searching and searching and searching for a definite answer when it comes to Australian Superannuation, and how to it affects taxes for US expats. Unfortunately, the more I research I did, the more confused 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 talk with a tax accountant, specifically someone who is familiar with expat taxes.
Taxes for Expats has agreed to give Sydney Moving Guide readers a $75USD credit (promo code “downunder”) towards any of their services. This credit will cover your FBAR filing, something I talk about in this post that is a very important form you will be filing each year as a US expat.
Please use this credit! Yes, Taxes for Expats is a partner of Sydney Moving Guide, and yes, they do pay me a referral commission. The $75 credit comes from me waving a portion of that commission because getting your taxes right is of huge importance. Even what seem to be minor mistakes, can result in major fines.
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 accumulate 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 a 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 grantors 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 grantors 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 grantors 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 $120,000USD 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.