The proposed $500,000 lifetime cap has already seen a significant decline in the amount of overseas money flowing into the Australian super system and is predicted to have negative ramifications for the economy, says an industry lawyer.
DBA Lawyers Daniel Butler says it is impossible, or not viable, for many individuals to bring their money into the Australian super system due to the proposed $500,000 lifetime cap, and the money is now set to remain overseas.
Mr Butler said among the client base of his firm alone, there are millions of dollars trapped overseas, and based on discussions with others in the industry, he believes this scenario is also mirrored in many tax and financial services firms.
“That money [will instead] be invested into foreign countries to create employment and jobs in foreign countries,” he told SMSF Adviser.
Many of the people who want to move their money are Australian expats looking to return to Australia after working in foreign countries for years.
“It’s often the law that they have to access their local system because there is the equivalent of the super guarantee where you’ve got to put it into a local complying fund,” Mr Butler said.
“To that extent, due to their being overseas, they’ve been isolated and trapped because the guillotine has now sliced them down the middle where their accrued super in a foreign fund cannot be transferred to a local fund.”
Mr Butler said the government should be encouraging Australians to bring their money back as “it’s good for jobs and good for growth, and that’s the government’s rhetoric”.
Jeff Bowman from international tax consultancy Bowman & Associates in the UK said the latest proposals from the Australian government are a reversal from when the superannuation rules were changed in 2004.
“They got relaxed a bit in 2004 and one of the aims was to get more money managed in Australia by encouraging migrants to bring their superannuation to Australia and have it managed in Australia, because if you’re in Australia long term, it’s more likely that the money will be managed in Australia,” he said.
“Also, the actual funds will end up in Australia because of the basic imputation system which gives you a refundable credit if your tax rate is less than 30 per cent on dividends.”
Mr Bowman said it generally isn’t cost effective to bring $500,000 only because of the legal requirements and reports the individual has to submit in order to transfer their pension money over.
“So it’s going to mean less money is managed in Australia and less money will be available for reinvestment in Australia and I don’t know if the Australian Treasury has appreciated that.”
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