An Administrative Appeals Tribunal (AAT) decision handed down last year has indicated a retirement savings amount transferred from an approved overseas jurisdiction must be examined beyond face value to determine if it is to be treated as a superannuation interest for tax purposes.
The James Came case involved an individual who was attempting to transfer $600,000, constituting a capital amount of $300,000 and income on that capital of $300,000, from South Africa to his fund, the Strayon Superannuation Fund.
Under the law, transfers of this nature are unable to be paid directly into a superannuation fund. Instead, they have to be channelled through an emigrant capital account before ultimately being paid into a super fund.
The party involved applied for a private binding ruling from the ATO to confirm how the money transferred would be treated. The regulator determined the money could not be taxed as part of the superannuation system because it had come from the emigrant capital account and not directly from the South African pension scheme.
Dissatisfied with the result, Came took the matter to the AAT to challenge the ATO’s decision.
“The AAT disagreed and sided with the taxpayer because it said it was a superannuation benefit in connection with [the individual’s] superannuation and the only way he could get his South African super to his Australian super fund was through the emigrant capital account,” Adviser Digest director and founder Peter Johnson told attendees of the most recent Auditors Institute member webinar.
Johnson noted the transaction must have taken place several years ago because the tax treatment under current legislation would not be advantageous to the person involved.
“This must have happened before 2017 because now if you moved it into the Australian super fund, it would draw a massive tax liability because it would be treated as a concessional contribution. It means you’d be better off taking the money directly and being taxed at your marginal tax rate instead of attracting excess concessional contribution penalties,” he said.
He took the opportunity to point out it is only from certain countries that people can transfer pension scheme benefits to an Australian superannuation fund.
“At least we know now [amounts like this transferred] from South Africa is super, from the UK it is super, but from America it is not super. [If the money is from] Holland it is super, from Argentina it is super, but from Canada it’s not super,” he noted.
“So you’ve got to have an understanding of [these rules].”
