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Multinational advice needed for foreign super

In an increasingly globalised world, advisers must be aware of the challenges involved in transfers from overseas superannuation funds as they stretched far beyond foreign exchange considerations, according to an SMSF specialist.

At the SMSF Association 2016 National Conference in Adelaide on Friday, Cooper Partners director Jemma Sanderson said Australian advisers needed to do their research when dealing with individuals who were looking to move their superannuation or pension savings over from a foreign country.

“Speak to local advisers [in the foreign country] to make sure all the circumstances are satisfied,” Sanderson said.

“The way the overseas jurisdiction interacts with Australia is really important and you might make an election for the growth component to be included in the super fund by rolling that whole amount over, and it’s actually a worse tax position than it would be if you just received it personally and made that post-tax contribution.

“It’s really important to seek that local advice as it can have a substantial tax impact for [the individual].”

In order to be classified as a foreign superannuation fund, the fund in question needs to meet the Australian definition of a super fund as per section 10 of the Superannuation Industry (Supervision) Act.

“Effectively, the rules of the foreign fund need to have the same restrictions the rules of the Australian fund would be subject to,” Sanderson said.

Importantly, individual retirement arrangements held by United States citizens did not meet those requirements, which advisers needed to be aware of, she added.

Clients who were looking to migrate their superannuation savings from the United Kingdom to Australia were likely to face long and drawn-out time frames often in excess of six months, she revealed.

“Whatever the value of the fund was when you left [the UK] to the value of it when you bring it into the country, that’s considered to be your applicable earnings, and that’s taxed at your marginal tax rate in Australia, the growth component,” she said.

“That’s the default position, however, if you bring over that whole amount and you transfer it immediately into a superannuation fund, then you can elect for it to be taxed at the fund rate of 15 per cent rather than the marginal rate.”

To take advantage of the concession, advisers needed to ensure the entire fund balance being brought into the country was transferred into an Australian super fund and nothing was left in the original source fund, she said.

“In terms of the way in a super fund that it’s treated, that growth component in the super fund is not treated as a concessional contribution or a non-concessional contribution so it can go into the fund quite generously from that perspective,” she said.

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