Liberty and justice for all United States persons abroad

The Isaac Brock Society

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Dealing with Australian Superannuation has come up frequently at Brock, sometimes on the FATCA and Australia page and sometimes on various other threads.

JakDac suggested we have a post for this specific topic, so people can post helpful information (or ask questions) on Superannuation in one location, so people won’t have to search throughout the site.

We’re kicking it off with a text by JakDac, who asks that you remember these are suggestions, unless verified.

JakDac writes:

“If you’re in a standard fund (industry fund or retail fund), and all of the contributions are employer contributions then it is probably classified as a 402(b) plan for US tax purposes. This means: Contributions are taxed by the US on the way in. A portion of withdrawals is taxed on the way out. No tax on current earnings inside super. (this is my understanding of the law, not tax advice – I am not a tax professional)

“You might note the gift allowance to non-US spouse of $145,000k per year to help move money around  Should WE be doing this ?

“Australian dividends. The US does not recognise Australian franking credits. May best in non-US person name.

“All not double taxation prevented.

“If super is classified as a 402(b) plan (and this depends on the facts and circumstances, but should apply to most corporate and industry funds, and many retail funds), then contributions are taxed, but income inside the fund is not taxed until withdrawn. I don’t know whether you need to be careful about transferring between funds as this may change it from a 402(b) plan to something less favourable.

‘Karen says
April 13, 2016 at 10:51 pm

‘@StressedinAus – forewarned is forearmed, or something like that. It is possible to live as a US tax compliant Australian resident with very little US tax paid — at least until you retire.

‘For super – don’t make any contributions over the 9.25% super guarantee (well, you could possibly make more pre-tax/salary sacrifice contributions, but you need to run the numbers first). And definitely no after-tax (non-concessional) contributions. If you’re in a standard fund (industry fund or retail fund), and all of the contributions are employer contributions then it is probably classified as a 402(b) plan for US tax purposes. This means: Contributions are taxed by the US on the way in. A portion of withdrawals is taxed on the way out. No tax on current earnings inside super. (this is my understanding of the law, not tax advice – I am not a tax professional)

‘outside of super – no managed funds (or REITs or ETFs), house in your name, make sure the total value of accounts (bank accts plus brokerage accts) he is named on is no more than US$10,000. If he wants to save more than that, he should try to find a US-based account (pretty hard to do, but possible) – of course, that exposes him to currency risk.

‘And I second what Bubblebustin and others have said — use the opportunity of being compliant to freely advocate for change.’ ”

70 thoughts on “Australia: Dealing with Superannuation”

  1. @Karen. Could be my treatment of super is wrong/or there is as you say wide latitude for interpretation. That is one of the scary parts of it all – you are going one way and, oh no!, not right,more damage. I believe there is a reference from @Badger above that even the IRS does not have it figured out.

    I heard you can not use super tax as a credit as super is kind of like a trust and you are not getting taxed but the trust is (of course funny that you get tax on contributions/gains – you get that but not credit on tax). The tax on account gain each year is kind of like PFIC treatment, I think. I have no link for that.

    Sounds like you studied this a bit more closely than I. I think we are agreeing that after tax contributions definitely bad. And this is and all the complexity of it all is definitely wrong and bad. I am thinking of using the words [Australian] government malpractice in regards to the tax treaty. It all seems presented to Parliament as all good, why not sign. Can we engage the ACCC? Misrepresentation on part of ATO? There are other tax treaty gaps. I thought superannuation and US extraterritorial tax on that would stand the best chance of gaining attention with the Australian Government.

  2. JC – No one is really sure how US rules apply to super — and, yes, that is scary.

    The complexity is insane, but I’m not sure who on the Australian side would be willing/able to address the issue. CBT is the problem, and that can only really be addressed on the US side.

    OTOH, the more the Australian government understands the costs to Australia of US exceptionalism and extra-territorial tax, the more likely they are to stand up for Australian sovereignty whenever they get around to re-negotiating the treaty.

  4. @JakDac
    I’ve seen that ad – very few details. Obviously, they want to protect their investment in the research that came up with their position, so they don’t want to give it away for free. But, without any clue as to what they’re really selling, there’s no way to know how risky it is. I’m very skeptical.

  5. @ JakDac @ Karen, I just watched the castro and co video. does anyone know anything about John Castro? I couldnt’ find him on the Florida Texas or Washington DC bar association websites.

  7. Emailed and talked a few times

    Got the feeling that he wanted to “protect their investment in the research that came up with their position “.

    Would love to know what strategy or vehicle he claims to use to male Super tax free.

  8. Regarding John Castro

    His Superannuation strategy is as mysterious as are his legal credentials. He’s not listed in the bar directories of Washington DC, Florida, Texas, or New Mexico.

    For the sake of his clients I hope I’m missing something here.

    Can anyone confirm that he is who he says he is?

    https://www.dcbar.org/membership/find-a-member.cfm

    https://www.texasbar.com/AM/Template.cfm?Section=Find_A_Lawyer&Template=/CustomSource/MemberDirectory/Search_Form_Client_Main.cfm

    https://www.floridabar.org/wps/portal/flbar/home/directories/MBR/!ut/p/z1/jZFBD4IwDIV_iweO0m4ORW-LSgSdaBTFXQwYBBIFM1Hiv5cYLySi9tbke21fH0jwQWbBPY2DIs2z4FT1O9ndI6Vj4q7QQTazkC9XfW-6IDgRFLYvQPQJJ8xEx2TcQnvT29i9NaF8boD8R48NxfFPfTMgv4_fgqyvcIfWCLlgoxlbz4kw6BtosIgu-Q68fvDrCueXzSoHnoUdMwapomOkIqXfVBVPUhSX60BDDcuy1OM8j0-Rfgg0_KRI8msBfg2Ey9nzfEzttgwfJW-1nklsEI4!/dz/d5/L2dBISEvZ0FBIS9nQSEh/

    http://www.nmbar.org/nmstatebar/Directory/I_Need_a_Lawyer/Find_an_Attorney/Nmstatebar/For_Public/Find_an_Attorney.aspx?hkey=21eb22c1-ad95-416b-9aac-e293025c814f

  13. @all, I don’t know anything about Australian superannuations, so not attempting to weigh in, but I try to post what looks like useful stuff when I see it. Wise to be wary of the sources out there and doublecheck against other info if and when possible. This has tended to be a reliable source for info over the years, and he has at some points invited people to send questions on various issues he was blogging about. For ex. http://hodgen.com/noncovered-expatriates-and-superannuations/

    (The other info I found and posted earlier re Australian Superannuations and IRS confusion about them was the info a US law practice obtained via FOIA http://isaacbrocksociety.ca/2016/05/15/australia-dealing-with-superannuation/comment-page-1/#comment-7548369
    http://isaacbrocksociety.ca/2016/05/15/australia-dealing-with-superannuation/comment-page-1/#comment-7548376 )

  14. @badger – thanks for the links. Good idea to collect them here where people might be looking for this info.

  15. MoodysGartner have a new version of their superannuation paper on their website: http://usaustralia.moodysgartner.com/wp-content/uploads/2016/07/u-s-taxation-australian-superannuation-funds-super-not-super.pdf

    It does advocate change in the tax treaty as the best remedy (after telling the Australian government how to write domestic Australian law to suit US tax definitions).

    After reading the summary of how super should be treated on a US return, I had more questions than answers. Here are some of my questions:

    Are all super funds treated the same for US tax, including SMSFs? How about defined benefit plans?

    Does the ability to direct investment decisions make super into a grantor trust? (In particular, should US expats stay away from Super Wrap accounts like https://www.netwealth.com.au/nw/Access/Superannuation/Personal-Super )?

    Where the choice of fund is determined by an Enterprise Bargaining Agreement, does that increase the likelihood of meeting the US definition of an “employer trust”? Does it matter if the EBA sets the employer contribution higher than 9.5%?

  16. 2016 National Superannuation Conference
    event 25-26 August 2016 | Crown Conference Hall, Melbourne

    Session 12: US Tax Issues Affecting Australian Superannuation Fund Members with a US Connection
    Any member of an Australian superannuation fund who is a US citizen, or an Australian resident whose employment or other circumstances require them to file a US tax return, is likely to be subject to US income taxes on employer and employee contributions to the fund, accrued growth in the fund, and distributions made from the fund to the member.
    Ending the conference with a strong international flavour, this session will examine current trends in the US tax treatment of Australian superannuation funds and its implications for US citizens and Australian residents with US tax reporting obligations. It will also discuss the various administrative remedies and legislative policy changes presented before the US Department of Treasury, the Internal Revenue Service, US Tax Court and tax-writing committees of the US Congress that could ameliorate these US tax liabilities.

  17. ameliorate
    əˈmiːlɪəreɪt/Submit
    verbformal
    make (something bad or unsatisfactory) better.
    “the reform did much to ameliorate living standards”

  18. Went to Moodys US Citizenship Seminar

    Approximately 20 + attended (some with friends )

    I believe a fair overview of American Expats positions was presented.

    There were three presenters and a hard copy booklet was also distributed to follow

    For the faint of heart the subject of readmitrance to the US upon renunciation was a hard concept and who really knows what some US senators will do about this.

    I see that this firm is also presenting to the 2016 National Superannuation Conference on the 25th of August. It is my sincere hope that they present a well balanced overview of this ridiculous situation attributed only to our birth AND to be followed on by our offspring.

    I believe these representatives have an opportunity to help us spread the word and impliment fair change.

    They can enhance their reputation by being positive change agents and still be able to make a good living assisting complex tax issues that would have to be resolved a win/ win.

    A brand name that is earned properly in a new market will flourish.

  19. @JacDak

    Thanks for your report.

    For the faint of heart the subject of readmitrance to the US upon renunciation was a hard concept and who really knows what some US senators will do about this.

    Interesting reaction, one which I did not have when I attended one of these last year. The recent post on the Reed Amendment is directly a result of how permanent inadmissibility was presented there.

    I do hope, if you haven’t already, that you will make time to read the post. There have been other reactions posted on Brock before. I will post links later when I get to the computer.

  20. @JakDac, re “I believe these representatives have an opportunity to help us spread the word and implement fair change.”

    With the benefit of hindsight only;
    I’m afraid that angle didn’t pan out when we started down that road in late 2011 with a hope of fairness and being heard, and it didn’t lead to any implementation of fair change. It led to this https://openparliament.ca/committees/finance/41-2/34/roy-berg-1/ ) seeking out and appearing before OUR Canadian parliament lobbying in favour of FATCA being implemented in Canada – with the legal, accountholder, social, tax and other costs (in terms of the abrogation of our human, civil and Charter/Constitutional rights) to be borne on the backs of Canadian taxpayers, citizens and residents – despite professional knowledge ( ex. https://isaacbrocksociety.wordpress.com/2012/02/03/give-the-taxpayer-advocate-service-a-piece-of-your-mind/#comment-4232 ) and experience with Canadian clients which would have amply illustrated the costly impact of US extraterritorial CBT, FBAR – and now FATCA as a CBT enforcement tool ) ex. http://isaacbrocksociety.ca/2012/01/13/taxpayer-advocate-services-report-congress-also-addressed-taxpayer-rights-questionable-we-have-all-of-these/comment-page-1/#comment-4619 ).

    This US lawyer testified IN FAVOUR of why Canada SHOULD COMPLY with FATCA, and sign the FATCA IGA https://openparliament.ca/search/?q=%22roy+berg%22 and also attended the first hearing of the ADCS lawsuit in the company of the legal team defending the government of Canada’ FATCA compliance (and thereby by proxy the interests of the US government) AGAINST us. This is a transplant to Canada, who appeared on the Canadian scene in 2011, just in time for the OVDI and US tax compliance gold rush. It is only more recently that services expanded to develop the now lucrative renunciation industry – a service that in my experience, they were not so eager to assist with in earlier days.

    In late 2011 and onwards,we were eagerly and desperately seeking reputable information and advice and hoping for an advocate. IBS readers were offered discounted access to a webinar of a session very like the one you describe https://isaacbrocksociety.wordpress.com/2012/01/13/free-seminar-roy-a-berg-jd-llm/ and notified of others http://isaacbrocksociety.ca/2012/02/07/upcoming-free-public-us-tax-presentations-in-alberta-calgary-red-deer-edmonton/comment-page-1/#comment-7667 without the later developed materials on renunciation.

    However, later, in May 13th, 2014 this was the position espoused, by a US citizen lawyer export to Canada, appearing before OUR Canadian parliament, to encourage CANADIANS to legislate the FATCA IGA and thereby comply with his foreign country’s government’s extraterritorial demands:

    “….The committee is likely going to be aware of rather jingoistic hyperbolic rhetoric admonishing Finance for ceding Canadian power, ceding sovereignty, and also encouraging Canada to stand up to FATCA. As the committee hears such comments, we encourage it to remember that FATCA is U.S. law, and the way it’s designed, it’s enforced not by the IRS, not by the Treasury, but by the markets themselves. In that, it is like a sales tax. The withholding obligation is on the person making the payments…..”..
    https://openparliament.ca/committees/finance/41-2/34/roy-berg-1/

    That quote above was a direct reference to a Canadian citizen who appeared AGAINST Canada’s surrender to FATCA ( http://maplesandbox.ca/2014/lynne-swanson-appointed-chief-jingo-4-canada-on-fatca-hyperbolic-rhetoric/ ).

    See for example actions like these which actively oppose the ADCS lawsuit;

    “2015.02.11
    Roy Berg, JD LLM (US Tax), is a Barrister and Solicitor and Director of US Tax Law at Moodys Gartner in Canada, and presumably provides tax advice for Canadian citizens who might wish to become U.S. IRS compliant for the entirety of their lives and transfer a portion of their Canadian-made retirement assets to the United States. Today Mr. Berg raised the issue on his company’s website that the characteristics of our two plaintiffs in the Canadian lawsuit (both U.S.-Canada dual citizens at birth) might “nullify” the Canadian lawsuit should a U.S. President Obama budget proposal be enacted into law. Arvay responds to this issue by confirming that the Canadian lawsuit is not dependent on specific characteristics of the two plaintiffs, that should any plaintiff ever lose “standing” additional plaintiffs can be added, that only a single plaintiff with standing is required for the lawsuit, and that witnesses are included in the lawsuit who have different characteristics and span different aspects of harm.”
    http://isaacbrocksociety.ca/2015/02/17/adcs-adsc-litigation-updates-key-actions-milestones-and-timeline-estimates/
    http://isaacbrocksociety.ca/2015/08/25/an-interesting-analysis-of-an-analysis-john-richardson-on-roy-berg-on-the-summary-trial/

    This was authored by the same firm;
    http://moodysgartner.com/is-the-canadian-fatca-lawsuit-a-pyrrhic-war/

    On the other hand, some US tax professionals have taken on some of the education and advocacy issues from inside the US, and while he does not advise people not to comply, he has been frank about the unwarranted punishment that US extraterritorial CBT represents for those living outside the US. And, best of all, unlike the firm running those seminars in Canada and Australia, he has also NOT waded into Canadian politics by wangling an appearance before MY Canadian parliament urging MY Canadian government to comply with the punitive and costly edicts of his foreign US one.

    This is not an endorsement, but to me, it is an example of how a US tax professional can act professionally, contribute to education and advocacy on behalf of those outside the US, yet refreshingly free of any political endorsement of FATCA or any other US government initiatives:
    ex. http://isaacbrocksociety.ca/2012/05/08/phil-hodgen-meets-with-irs-to-solve-rrsp-problems-thank-you-phil/comment-page-1/
    https://renounceuscitizenship.wordpress.com/2012/06/07/phil-hodgen-why-people-expatriate-a-comment-on-his-post-what-about-those-who-cannot-certify-5-years-of-tax-compliance/

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