SMSF trustees are able to move large sums of money from foreign pension schemes into their funds, but must ensure they report the transfers correctly at both ends, an SMSF administrator has advised.
SuperGuardian education manager Tim Miller said the removal of fund-capped contribution limits in 2017 allowed trustees to move large sums of money from overseas into their SMSFs, but there were benefits and drawbacks associated with the move.
“The key message to remember is these foreign pension transfers are part contribution and part assessable income, so they are not rollovers,” Miller said during a recent webinar.
He pointed out any amount that was transferred within six months of a person becoming an Australian resident was treated as a 100 per cent non-concessional contribution (NCC) and measured against the NCC cap, and was also subject to the transfer balance cap and total super balance criteria.
If the transfer took place after that date, it was also subject to a growth calculation, he added.
“If the amount transferred is 100 per cent of the foreign fund, and they close down that fund, the trustee has the capacity to treat the growth portion as applicable fund earnings and make an election for the fund to pay 15 per cent tax, which is income to the fund and not a contribution,” he said.
He said problems occurred when SMSF trustees reported these transfers on the income tax and annual return for their SMSF.
“If you are not careful with those amounts, you can put it in the incorrect box in the return and that will trigger an excess concessional contribution,” he said.
“We see this in the way some systems automatically allocate the funds and if that is not picked up and put in the right fields, they have an issue.”
He said the ability to bring over pension sums greater than $300,000 was a benefit of the removal of fund-capped contribution limits, but trustees had to be aware of the possibility of triggering an excess contribution.
“The issue is that if you trigger it, and the foreign money is all there is in the SMSF, you may not have a chance to release money from another fund to offset it,” he said.
“If you do have other money in a super fund in Australia and bring more over, say from the UK, you could elect to have that money refunded from segregated SMSF money or another super provider.”
He said SMSF trustees seeking to access benefits, particularly from the UK, may be better served to start a pension there and draw down the benefits here.
“Trustees need to contemplate that if they are rolling over amounts that are excessive, what are the consequences with regards to the original place where the money came from and the UK is the strictest one we deal with.”