Contributing to an Australian Super?

Your Guide to State, Local, Federal, Estate + International Taxation

The Australian superannuation, commonly known as the Australian Super is a type of mandatory savings for retirement. The Australian government sets a minimum percentage that should be paid by employees into their super out of their income, and also requires that employers contribute to the super accounts of their employees. Australians can invest the funds in their super as they like but can only withdraw from the account after certain conditions have been met, the most common being retirement. Other circumstances where early access is allowed includes specific medical conditions or severe financial hardship.

Don’t miss: U.S. banning accounting and consulting services to Russia

Similar to U.S. IRAs and 401(k)s, the contributions to supers can be “before-tax” or “after-tax”, in this case called concessional or non-concessional contributions. Unlike certain U.S. tax-advantaged retirement accounts, Australia taxes the investment income earned by supers. However, a lower capital gains discount applies for assets owned over 12 months. Contributing more than the limit in a given year can also trigger an additional tax.

Unfortunately, the IRS has yet to classify the Australian super for tax purposes. Reporting rules, as well as how the IRS taxes the contributions, investment income earned, and distributions from a super are not certain. There are some generally accepted positions regarding reporting in the U.S., these general understandings, but by no means certain conditions, are as follows:

Contributions- generally taxable.

Earnings – the general position is that under the treaty the growth in the fund should not be taxable until distributed if employee is not a highly compensated employee.

Distributions- Taxable on the portion deemed income and not corpus.

With respect to reporting, in addition to Forms 8833, FiNCEN 114, Form 8938, Form 8621(in some cases), Forms 3520A/3520 may be required if greater than 50% of the contributions come from the taxpayer.

Of course, this can all change depending on the facts and circumstances of each individual. Regardless of the position taken, Form 8833 should be filed to disclose any position taken in relation to the U.S.-Australia Income Tax Treaty. Absent a properly filed Form 8833, the US Internal Revenue Code applies to U.S. tax returns, not a treaty with any foreign country.

This information is general in nature and should not be relied upon as tax advice. If you have any questions about the Australian Super, contact your Henry+Horne tax advisor.

Haley M. Braun, CPA