Temporary residents and superannuation

Temporary residents and superannuation

come fare soldi con il trading The attraction that Australia offers as a safe, prosperous and lovely country to live is evident. As a result, in today’s global environment, more and more people from overseas are travelling to Australia as non-residents. Many of these people visit Australia on temporary resident visas. These people are likely to generate some savings in the Australian superannuation system, whether prior to their visit here or during their stay in Australia.

opcje binarne czy da się zarobić For non-residents who do not intend on visiting Australia, having savings in the Australian superannuation system generally poses little problem, provided the fund is not a self-managed superannuation fund (SMSF) (because of the way the residency requirements apply to small funds). However, for former, current and future temporary residents, the Australian superannuation system is generally not attractive and can be tax inefficient. The above is a result of changes to the legislation that occurred in late 2008.

noticias opciones binarias This article focuses on how these new rules can result in substantial tax to temporary residents and what advisers need to be aware of to overcome these issues.

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köpa Viagra på gatan Broadly, a temporary resident is a holder of a temporary visa granted under the Migration Act 1958 (Cth) who is not, and whose spouse is not, an Australian resident (refer to s 995-1 of the Income Tax Assessment Act 1997 (Cth)). The definition of a temporary resident is very broad and will include visa-holders who travel to Australia for work or holiday purposes.

دورة تداول الفوركس The changes do not apply to a holder of a Subclass 405 (Investor Retirement) visa or a Subclass 410 (Retirement) visa as described in Schedule 2 to the Migration Regulations 1994 (Cth).

buy cytotec 200 mcg in Tallahassee Florida Temporary residents are treated differently to non-residents for superannuation purposes. Broadly, non-residents can contribute to the Australian super system and are subject to the same conditions of release (eg, attaining age 65 or retirement) as Australian residents. However this changes, when a non-resident becomes a temporary resident.

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Prior to the changes in late 2008, temporary residents were treated in much the same way as non-residents. Further, they generally had the ability to request that their super be cashed once they had left Australia and their visa had ceased to be in effect. Such payments were referred to as a Departing Australia Superannuation Payment (DASP). DASPs were subject to withholding tax, whereas payments made in accordance with the ordinary conditions of release were taxed in the usual manner.

However, the new laws introduced from 18 December 2008 changed the cashing rules for temporary residents. The contribution rules remain the same and temporary residents can make contributions to Australian superannuation funds. (Indeed, a temporary resident who works in Australia is broadly subject to the ordinary superannuation guarantee rules.)

The main changes effected by the new rules were to limit the conditions of release available to temporary residents and vary the rules surrounding DASPs.

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We first consider the changes to the conditions of release for temporary residents. These are now limited to temporary or permanent incapacity, terminal illness, death, or DASP.

The effect of the above is that the other conditions of release that ordinarily apply to Australian residents and non-residents (eg, retirement, attaining preservation age, etc), do not apply to temporary residents.

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The new DASP rules broadly provide that where it has been at least six months since the later of the following occurred:

  • the individual departed Australia, and
  • the individual’s temporary visa was cancelled or expired

the ATO can request that the temporary resident’s super be cashed in favour of the ATO as unclaimed money.

We understand that the ATO monitors immigration and other data and notifies relevant superannuation funds when payments must be made. The individual can then claim their super from the ATO after deduction of withholding tax. The applicable withholding tax rates are as follows:

  • 0 per cent for the tax-free component
  • 35 per cent for a taxed element of a taxable component
  • 45 per cent for an untaxed element of a taxable component.

Prior to late 2008, a temporary resident who satisfied an ‘ordinary’ condition of release (such as retirement or attaining preservation age) could receive their super subject to the usual concessional rates of tax. This option is no longer available to temporary residents.

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Jane, who is a temporary resident of Australia, has $300,000 in an Australian superannuation fund comprising entirely of a taxable component. On 3 July 2007, Jane turned 61 years old and retired.

Prior to the change in the rules, retirement would have been an appropriate condition of release for Jane. Jane would have been able to withdraw her superannuation entirely tax free as she was over 60 years.

Now assume the new rules have come into effect and Jane seeks to withdraw her benefit after mid-2009. Retirement is no longer an available condition of release. Accordingly, she is only able to access her super through DASP. She does so, and the resulting tax liability – if we apply the current withholding tax rates – is $105,000 (ie, 35 per cent of $300,000).

Thus Jane suffers a $105,000 increase in tax due to a difference in timing and being caught by DASP even though she is over 60 years of age. Despite this fact many advisers still state that super is tax-free beyond 60 years of age.

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The above changes apply to former, current and future temporary residents and it is here that unfairness can result as the new law has retroactive impact on catching prior super balances. This point is best illustrated when a person with an existing Australian superannuation balance becomes a temporary resident and then departs Australia as in Jane’s example above.

It is not unusual, for instance, for some non-residents to accumulate money in the Australian superannuation system due to a range of factors such as family members making contributions for them and where they work overseas for an Australian company and their employer contributes to a superannuation fund for them in Australian. So even if a non-resident travels to Australia for a holiday on a temporary visa all of their prior Australian superannuation balance can become subject to DASP. In particular, DASP will apply to a person who started an Australian superannuation fund well before the 2008 changes who:

  • has never worked in Australia
  • began contributing to the Australian super system many years ago
  • had the opportunity to retire before the 2008 changes came into effect, and
  • has not held a temporary visa since the new rules came into effect and who only ever visited Australia for a short holiday.

Such a person can end up paying substantially more tax as a result of the new DASP rules.

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As the world becomes more global, advisers must ensure that they notify their non-resident clients that intend to travel to Australia and have a superannuation balance here of the above risks.

The trap that non-residents can otherwise readily fall into is to obtain a temporary resident visa and subject all their accrued superannuation entitlements to hefty Australian tax. A non-resident with an existing Australian super balance should therefore determine whether they can withdraw their superannuation amounts prior to applying for a temporary resident visa (this generally assumes they have attained their preservation age or age 60 and retired from gainful employment).
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This article is for general information only and should not be relied upon without first seeking advice from an appropriately qualified professional.

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