Australia: Temporary Residency Superannuation Legislation Amendments

Last Updated: 19 February 2009
Article by Michael van Schaik

The Temporary Residency Superannuation Act and the Superannuation (Departing Australia Superannuation Payment Tax) Amendments Act have both received Royal Assent on 11th December 2008.

Former position

Individuals holding temporary resident visas such as 457 subclass visas are currently eligible to access their superannuation benefits early before retirement age when their visas are cancelled or have expired, and they have departed Australia by applying for a departing Australia superannuation payment ("DASP").

Previously, any amounts which were unclaimed remained with the superannuation fund until they are claimed or eroded. If the individual was close to retirement age, they could leave their amount in the fund and obtain the cash tax-free when they reached preservation age instead of being taxed at the current tax rate of 30% applicable on DASP.

New position

The changes mean that when temporary visa holders leave Australia without claiming their superannuation, these relevant amounts are now reportable and payable to the Commissioner as unclaimed superannuation within 6 months of the visa ceasing to be in effect and the temporary resident has departed Australia.

If departing temporary residents have not claimed their superannuation within the allotted 6 month period, they will be required to claim their 'unclaimed superannuation' from the Commissioner of the Australian Tax Office to gain access to their Australian superannuation. The departing temporary residents have an indefinite period to claim 'unclaimed superannuation' which is taxed at the increased rates below.

This in effect means that a temporary resident is no longer entitled to leave their superannuation funds untouched until preservation age because the fund will automatically be transferred to the ATO. Any funds that are taken out of Australia, even after the temporary resident has reached preservation age, will be subject to the departing Australia superannuation payment tax.

The Acts have increased the tax rates applicable (from 1 April 2009) on the DASP as follows:

From 30% to 35% for taxed element in the superannuation fund and

From 40% to 45% for non-taxed element in the superannuation fund

Summary of changes

Previous Position

Paid $100 into Superannuation Fund
Amount taxed at 15%
Leaves a total of $85

If DASP is taken the $85 is taxed at 30%
Tax of $25.50
Net amount $59.50

If the $85 is left in the fund until preservation age the $85 is tax free on exit from the fund

Current Position

Paid $100 into Superannuation Fund
Amount taxed at 15%
Leaves a total of $85

If DASP is taken the $85 is taxed at 35%
Tax of $29.75
Net amount $55.25

Can not leave in fund until preservation age, will be transferred to the Australian Tax Office after 6 months. DASP tax will always be withheld

Effectively, the amount is no longer tax-free and any tax planning opportunities for temporary residents have been removed. Funds put in superannuation are subject to a flat 15% tax rate and will be subject to another 35% of the taxable component of the DASP, which effectively results in a total tax of 50% applied on the amount.

Australian citizens and permanent visa holders remain unable to access their accumulated superannuation benefits until reaching preservation age and triggering a condition of release.

Impact on temporary entry permit holders

This is effectively higher than the current highest marginal tax rate and is not good news for temporary residents who are close to preservation age or who have been placing large amounts of voluntary contributions into Australian superannuation funds.

We recommend that where possible employers re-visit the superannuation exemption conditions that may apply to 'prescribed persons' saving the company and also the individual, large amounts of tax. Employers could also consider paying superannuation contributions into foreign pension funds as there are no specific caps placed on the amounts which can be contributed.

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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