It’s estimated that there are over 100,000 Australian expats that live and work in the United States of America. As a global HQ for many multi-national companies, particularly in the technology sector, it should come as no surprise that many Australians would relocate there for business and career opportunities.

While this can be an incredibly rewarding experience, it’s important to ensure that if you’re looking to relocate to the US, that you’re making a fully informed decision when it comes to your personal finances.

One of the most important aspects of this is your Australian superannuation, and that’s exactly what our team at Ally Wealth Management is covering this week. Whether you’re considering relocating to the US, or you’re already living in the US, we hope you find this information helpful.

The Basics of Superannuation

Superannuation is one of the largest and most efficient retirement systems globally, and the majority of Australian expats across the globe have some form of superannuation. Superannuation is generally structured as a form of Trust and contribution rates are currently 10% for individuals working in Australia or for the Australian Government, and this rate is expected to increase to 12% over the coming years.

While most countries will not seek to tax your superannuation, this can be a different story in the United States. If you’re an Australian citizen or have lived in Australia and you have superannuation, if you’re looking to move to the United States or already live there, it’s time to pay attention to your superannuation.

How Is Superannuation Treated in the United States?

The tax treatment of Australian superannuation in the United States can be quite a grey area. There have been a limited number of cases through the US courts to test and identify a consistent tax treatment for Australian superannuation. More often than not, US accountants will treat your superannuation as either a Foreign Grantor Trust or an Employee Benefits Trust, and this depends on a number of factors.

Foreign Grantor Trust vs. Employee Benefits Trust

The critical factor in determining how your superannuation is treated is the ‘control’ variable. The Internal Revenue Service (IRS) provides little clarity over what determines control, however there are some key factors in assessing this.

  • Contributions: If the employee made >50% of the contributions, it’s a Foreign Grantor Trust
  • Self-Managed: An SMSF would likely be considered a Foreign Grantor Trust due to the control and decision making involved.

How Is My Superannuation Taxed in the United States?

Employer Benefits Trust

If your superannuation is treated as an Employee Benefits Trust, then both the employer and employee contributions to your fund would be taxable in the United States, however any growth within the fund would not be taxable.

Foreign Grantor Trust

If your superannuation is considered to be a Foreign Grantor Trust, then both the contributions and any growth income within the fund would be considered taxable. This includes both realised and unrealised gains, which must both be reported and are taxable. As a Foreign Grantor Trust, you would also have to report your superannuation on the Foreign Bank Account Report (FBAR).

Do I Need To Report My Superannuation on my US Tax Return?

Employer Benefits Trust

If your superannuation is treated as this trust, then you would need to report your contributions on the relevant forms required. You would also need to report your superannuation on the FBAR whereby you own more than 50% of the assets within the trust. Where you’re part of a larger fund, it’s unlikely that you would own anywhere near 50% of the assets. Importantly, any investments that are considered to be Passive Foreign Investment Company (PFIC) investments that are held within an Employee benefits Trust do not need to be separately reported. This highlights why it’s important to review your investments if you’re looking to move to the United States.

Foreign Grantor Trust

If your superannuation is considered to be a Foreign Grantor Trust, then you must report ownership and income for all of the years you have the Trust. You must also report realised and unrealised gains as well as any PFIC investments held within the Trust.

Who Should I Speak To?

If you’re an Australian citizen considering a move to the United States, or have already relocated, seek professional advice from an Adviser experienced in working with Australians in America. It’s also important to work with a skilled tax accountant who has a solid understanding of the tax treatment for you as a global citizen.

 

 

Ally Wealth Management is the trusted ally in finance for Australians at home and across the globe. As both Australian expats and residents, the founders of Ally have a unique understanding of the common personal financial challenges faced.

Book your complimentary appointment with our team at Ally Wealth Management to discuss how we can help you to achieve your financial goals.

Ally Wealth Management Pty Ltd is a Corporate Authorised Representative of Sentry Advice Pty Ltd ABN 77 103 642 888. Sentry Advice holds an Australian Financial Services Licence (AFSL) No. 227 748.

General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.