Australia: Proposed Foreign Superannuation Exemption

Last Updated: 9 June 2008
Article by Michael van Schaik

On 19 May 2008, the Chairman of the Board of Taxation announced the release of the Board's issues papers on possible reforms to Australia's foreign source income anti-tax-deferral (attribution) rules. This paper complements the Board's position paper that was released on 12 March 2008.

We believe that the Board's recommendations are admirable and we strongly support their implementation.

We will continue to agitate to remove a number of the discrepancies and impediments in this area, particularly in respect of transfers of funds in Australian superannuation plans upon initial arrival in Australia.

This update focuses on the interaction with Australia's Foreign Investment Fund rules.


In general, under Australia's taxation rules, tax residents of Australia are taxable on their worldwide income.

To ensure residents cannot accumulate income offshore and thereby defer or avoid Australian an accruals basis on their share of income accumulating offshore.

Australia's attribution regimes include the foreign investment fund (FIF) rules.

A FIF is any foreign company or foreign trust. A foreign superannuation fund will fall within the meaning of a foreign trust.

There are a number of exemptions from the FIF rules including:

  • A temporary resident;
  • Employer sponsored superannuation funds; and
  • De minimis rules

However an individual who is treated as a tax resident will be caught by these rules and a number of issues arise in respect of foreign non employer sponsored superannuation funds.

A "temporary resident" of Australia is exempt from the foreign investment fund rules. An individual if a temporary resident if:

  • they hold a temporary visa granted under the Migration Act 1958; and
  • they are not an Australian resident within the meaning of the Social Security Act 1991; and
  • their spouse (married or de facto) is not an Australian resident within the meaning of the Social Security Act 1991.

Board of Taxation position

The Board has adopted the following positions that impact on individuals:

"Position 4.7 - That uniform de minimis exemptions be applied to all interests in foreign entities and that:

  • a $200,000 threshold apply to the total value of interests in foreign entities;
  • the balanced portfolio threshold be increased to 20 per cent and that it apply to an entity's total assets (rather than being confined to offshore investments only)."

"Position 4.15 - That an exemption apply to funds that have been rolled over from an employer-sponsored superannuation fund."

Board of Taxation principles

The Board adopted the following high level principles in reaching its position:

"4.111 The current FIF regime contains an exemption for foreign employer-sponsored superannuation funds. The exemption helps to align the treatment of foreign employer-sponsored superannuation funds with other government initiatives in regards to superannuation. Such treatment recognises that domestic superannuation arrangements are subject to concessional tax treatment and, therefore, there is no significant deferral benefit that can be gained by investing in foreign employer-sponsored superannuation funds.

4.112 The Board noted in its discussion paper, however, that the current exemption is very narrowly cast and that this has led to problems with the operation of the exemption. Key among these is the situation outlined in the paper whereby an employer-sponsored superannuation fund is rolled over (and subject to lock-in arrangements) when the employee leaves their employment to move to Australia. Since the fund is no longer employer-sponsored, the FIF regime may therefore apply.

4.114 While the Board's proposal to raise the de minimis threshold to $200,000 will accommodate many taxpayers, the Board's position is that the exemption should apply to those funds that are rolled over from an employer-sponsored superannuation fund.

4.115 Some submissions suggested widening the exemption even further to include all foreign superannuation funds. However, the Board is mindful of the need to ensure the continuing integrity of the exemption.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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