Sean Johnston, SMSF specialist with Heffron, said in a recent webinar that a lot of how a transfer is made from a foreign fund is contingent on the host country.
“When we’re talking about the Australian context, though, there’s effectively three parts to a transfer from a foreign super fund. The legislation talks about two, but it’s easier, I think, to think about three,” Johnston said.
“There is the portion that was in the fund at the point that you left your home country, or the original source country. There is the portion of growth that has effectively accrued since that point, and then there’s a third part afforded in the tax legislation as effectively gratuities or things you weren’t really entitled to by nature of growth on the investments, or as wages as a top up from the host country.”
Johnston said the third component is not treated as a concessional contribution, and in his experience are relatively rare, but the first two components as a default position are treated as one amount, which is taxable and is considered a non-concessional contribution to the super fund.
“There is no earnings component in these if you are repatriating all the money within six months. It’s just all capital which is the amount that you had in your foreign super fund at the point you left,” he said.
“Earnings is considered everything accrued since then and the member can make an election to have the fund or the recipient fund pay tax on all or part of the amount transferred from the earnings component.”
He gave an example of someone who left the UK with $400,000 which has since grown to $500,000 outside of the six months’ period.
“Notionally, the $500,000 would all be considered to be taxable in your personal hands as you repatriated, and would all be considered a non-concessional contribution to your super fund,” he said.
“But you can make the choice to have the $100,000 or any part of that $100,000 – up to the maximum of that $100,000 – taxed within your super fund, and it is taxed as earnings within the super fund at the 15 per cent rate. Then only the $400,000 would be a non-concessional contribution.”
He added that in the case of a non-concessional contribution of $400,000, the member will have some excess non-concessional contributions which can be used in other ways.
“For example, split it into multiple accounts, roll over a smaller amount so it might be able to get under the non-concessional cap,” he said.
