I thought it would be useful to summarise the position in respect of temporary entry permit holders and DASP on or after 1 April 2009.
Who Is Exempt From The New Rules?
These changes do not apply to:
- Australian citizens or permanent residents; or
- New Zealand citizens; or
- A retirement visa holder (subclasses 405 and 410).
The changes will only apply to any individual who fails the exclusion test as detailed above.
The balance of this note outlines the impact on temporary entry permit holders.
New Withholding Tax Rates
The Superannuation (Departing Australia Superannuation Payments Tax) Amendment Act 2008 has increased the rate of withholding tax payable on a DASP.
The new withholding tax rates effective 1 April 2009 are:
- Non concessional contributions 0%
- Post June 1994 invalidity payments 0%
- Untaxed post June 1983 component 45% (previously 40%)
- The balance 35% (previously 30%)
Restriction On Accessing DASP
The Superannuation Industry (Supervision) Amendment Regulations 2008 (No. 4) has introduced restrictions on the circumstances under which a temporary resident can access their super benefit with effect from 1 April 2009.
From 1 April 2009, any individual who is, or has, at any stage, been a temporary resident is only able to access their super benefit under the following conditions of release:
- Death;
- Terminal medical condition;
- Permanent incapacity;
- Temporary incapacity;
- Unclaimed money payment;
- Departing Australia Superannuation Payment; and
- Release authority for excess contributions
In addition, from 1 April 2009, any individual who is, or has, at any stage, been a temporary resident is unable to commence an income stream.
Critically, as a result of these changes, with effect from 1 April 2009, an individual who is or has at any stage has been a temporary resident will no longer be able to access their benefit under the following conditions of release:
- Permanent retirement from the workforce on or after attaining preservation age
- Leaving employment at age 60
- Attaining age 65
- Severe financial hardship
- Compassionate grounds approved by APRA
- Termination of gainful employment with a standard employer-sponsor where the individual's preserved benefit at the time of termination are less than $200
Impact On Temporary Entry Permit Holders
The impact is severe; there can be no other description.
The temporary resident faces an effective tax rate of 44.75% on superannuation contributions, irrespective of their actual marginal tax rate.
This 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.
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.
