“A common question I’m asked regards whether an Australian citizen can rollover their super benefits to a foreign fund,” Ms Fox said on the FisrtTech Podcast.
“In most cases, that’s not possible since preserved super must remain within the Australian super system, regardless of whether a client remains in Australia or permanently relocates.”
But Ms Fox said there is an exemption that applies to Australians permanently relocating to New Zealand who can transfer their Australian super to a New Zealand KiwiSaver scheme.
For Australians relocating to other countries, Ms Fox said, there are questions that relate to the taxation of lump sums and pensions which need to be addressed.
“The easy answer is how it will be taxed in Australia, the more challenging question is how it will be taxed in the foreign country,” she said.
As a default position, she said the Australian tax treatment of super lump sums and income streams made to residents and non-residents is basically the same but subject to two differences.
“Non-residents are subject to non-resident marginal tax rates and are not required to pay Medicare levy,” she said.
Australia has double tax agreements with over 40 different jurisdictions around the world. These tax agreements or tax treaties prevent double taxation between countries, and will override the default position.
“For example, if I move back to Canada to retire, I’d need to look at the DTA between Canada and Australia to see how any pension income is treated,” she said.
“There’s a standard format in DTS and pensions are usually addressed around article 18 of a DTA. Unfortunately, the wording of DTS is not always easy to interpret, and they do differ substantially between the different countries.
“There’s two jurisdictions that can potentially apply here, but in most circumstances, there’s some sort of tax treaty that says it’s taxed in one country or the other.”
However, she warned that sometimes the cross-country tax laws don’t always apply.
“For example, in Canada’s DTA, with Australia, what it basically says is that Australian-source pensions may be taxed in both Australia and Canada,” she said.
“So unfortunately, if I’ve reached the age of 60, my super pension will be tax-free for Australian tax purposes. But Canada still says it has the right to tax it.”
She said some countries with DTAs in place will waive a tax if the super fund and pension has already been taxed in Australia, but others don’t, so it is important to seek specialised foreign tax advice for whichever country you may deciding to relocate.
“In a lot of other circumstances, there are treaties that will say it’s [pension or super] is taxed in the country that the pension is paid from,” she said.
“If you’re over 60, great. It’s not taxed here. And it’s not taxed, where you’re living.
“But each DTA is different and you’d really have to check into it and get some expert advice on the other end of how it all works.”
