Asking for a friend...

[InnerVoice]

A friend of mine back in the UK is just about to turn 60. She lived in Australia for 9 years and has a super fund which she only mentioned during a conversation a couple of days ago, but was completely unaware that it would be taxed in Australia. Will she have to pay 32.5% on the full value of any withdrawals from the fund, or just the gain over the lifetime of the fund? How does the ATO calculate how much tax is due and when it needs to be paid? Thanks in advance.

[Marisawright]

Are you sure she'd be liable for Australian tax?  

I know a non-resident loses a huge chunk if they want to cash out their super under the DASP provisions, but she's over 60 so I'd have thought  there'd be no Australian tax to pay?  UK tax would be a different story of course.

[InnerVoice]

13 minutes ago, Marisawright said:

Are you sure she'd be liable for Australian tax?  

I know a non-resident loses a huge chunk if they want to cash out their super under the DASP provisions, but she's over 60 so I'd have thought there'd be no Australian tax to pay?  UK tax would be a different story of course.

Does that still apply to super even if the person is no longer an Australian resident? I thought any income generated in Australia would be taxed at 32.5%.

[Marisawright]

Here's the ATO advice to superannuation funds on treatment of income streams (not lump sums):

Payments to foreign residents

If the super income stream is to be made to a foreign resident, you will need to check if there is a tax treaty with their country of residence. If the super income stream is assessable in the other country because of the treaty, no withholding is required.

Example:

Jennifer, age 58, is an Australian citizen who has been living in Japan for a few years and is advised
by her registered tax agent that she is a non-resident for tax purposes. She recently met a retirement
condition of release and is able to access her preserved super benefit of $250,000 (assume 100%
taxable component). Australia has a DTA with Japan and if she starts a retirement income stream,
the pension income will only be taxable in Japan (as per the agreement).

 

 

A lump sum seems to be a different kettle of fish. If she was only in Australia for 9 years, it wouldn't normally be worth her converting it to an income stream as the amount would be so low, but if it avoids tax it might be the best option.

Edited August 19, 2023 by Marisawright

[InnerVoice]

7 hours ago, Marisawright said:

A lump sum seems to be a different kettle of fish. If she was only in Australia for 9 years, it wouldn't normally be worth her converting it to an income stream as the amount would be so low, but if it avoids tax it might be the best option.

Thank you, that was all clear until the last sentence. What's the difference between taking it as an income stream and a lump sum - wouldn't that be taxed the same as far as the HMRC is concerned?

[Marisawright]

1 hour ago, InnerVoice said:

Thank you, that was all clear until the last sentence. What's the difference between taking it as an income stream and a lump sum - wouldn't that be taxed the same as far as the HMRC is concerned?

Yes they are the same as far as HMRC is concerned.  The income stream will be treated as ordinary income, so how it's taxed will depend on how much other income you have that tax year. 

The lump sum is treated the same.  It's just money and HMRC doesn't care where it came from.  BUT the difference is that the amount is much larger, so you'll suddenly have a huge annual income that year and that could push you into the next tax bracket.  

However that article was talking about how the ATO taxes non-residents' super, not HMRC.  The ATO does not tax an income stream if you're a UK resident.  I couldn't find anything to say a lump sum wouldn't be taxed and in fact, I found a few references which suggested that it could be. 

 

[Parley]

1 hour ago, Marisawright said:

Yes they are the same as far as HMRC is concerned.  The income stream will be treated as ordinary income, so how it's taxed will depend on how much other income you have that tax year. 

The lump sum is treated the same.  It's just money and HMRC doesn't care where it came from.  BUT the difference is that the amount is much larger, so you'll suddenly have a huge annual income that year and that could push you into the next tax bracket.  

However that article was talking about how the ATO taxes non-residents' super, not HMRC.  The ATO does not tax an income stream if you're a UK resident.  I couldn't find anything to say a lump sum wouldn't be taxed and in fact, I found a few references which suggested that it could be. 

 

A lump sum isn't income. It is just like taking your own money out of a bank account. You can pay off debts or do whatever you want with it.

If you are over 60 you can take it tax free.

[Andrew from Vista Financial]

From a Superannuation legislation perspective then withdrawals from superannuation (including in pension phase) for a member who is 60+ (perm or citizen) are Australian tax free with the exception of untaxed super funds (typically government schemes).

In the example above the member is age 58 and for members under age 60 there are tax assessments to consider when accessing Super/Pension (Income Streams) hence the mention of the DTA.

Edited August 19, 2023 by Andrew from Vista Financial

[Marisawright]

9 hours ago, Parley said:

A lump sum isn't income. It is just like taking your own money out of a bank account. 

No. It's the proceeds of investment. Note the friend is already overseas,

We often say to people leaving Australia, make sure to withdraw the money before you go while it's tax free. Them once it's in an Australian bank, it's just money and there's no tax implications. But this person is already overseas 

[InnerVoice]

3 minutes ago, Marisawright said:

No. It's the proceeds of investment. Note the friend is already overseas,

We often say to people leaving Australia, make sure to withdraw the money before you go while it's tax free. Them once it's in an Australian bank, it's just money and there's no tax implications. But this person is already overseas 

So the person in question has got back to me and said that the value is equivalent to £30,000 and, to use her words, "it's in a private pension now, and not super". I'm not sure exactly what she means by that. I know she is definitely 59, so won't be taking it as an income stream yet, but as far as I was aware super was just the Australian term for a private pension.

[Marisawright]

54 minutes ago, InnerVoice said:

So the person in question has got back to me and said that the value is equivalent to £30,000 and, to use her words, "it's in a private pension now, and not super". I'm not sure exactly what she means by that. I know she is definitely 59, so won't be taking it as an income stream yet, but as far as I was aware super was just the Australian term for a private pension.

No, superannuation is where you save for your pension. When you retire you can either take a lump sum or convert it to an "income stream". Only then is it a pension. 

[InnerVoice]

33 minutes ago, Marisawright said:

No, superannuation is where you save for your pension. When you retire you can either take a lump sum or convert it to an "income stream". Only then is it a pension. 

That's exactly what I thought. Thanks again Marisa, you've been really helpful on this one 

[Ken]

On 19/08/2023 at 11:19, InnerVoice said:

A friend of mine back in the UK is just about to turn 60. She lived in Australia for 9 years and has a super fund which she only mentioned during a conversation a couple of days ago, but was completely unaware that it would be taxed in Australia. Will she have to pay 32.5% on the full value of any withdrawals from the fund, or just the gain over the lifetime of the fund? How does the ATO calculate how much tax is due and when it needs to be paid? Thanks in advance.

You don't explain what type of visa she lived in Australia on. If she only ever had a temporary visa then yes, it will be heavily taxed (the Departing Australia Superannuation Payment - DASP) and it's 35% not 32.5% on the Taxable Component - taxed element (and 45% if she has a taxable component untaxed element or possibly 65% if she ever held a Working Holiday Visa). If, however, she had a permanent visa or citizenship then there should be no Australian tax to pay, only UK tax.

[InnerVoice]

10 minutes ago, Ken said:

You don't explain what type of visa she lived in Australia on. If she only ever had a temporary visa then yes, it will be heavily taxed (the Departing Australia Superannuation Payment - DASP) and it's 35% not 32.5% on the Taxable Component - taxed element (and 45% if she has a taxable component untaxed element or possibly 65% if she ever held a Working Holiday Visa). If, however, she had a permanent visa or citizenship then there should be no Australian tax to pay, only UK tax.

Thanks @Ken, the short answer is I don't know.

I know she was previously married to an Australian so I assume she was here on a spouse visa. However, I'm fairly certain she didn't have permanent residency because she's often mentioned that she wishes she could return to Australia, but can't. So if she only ever had a temporary visa and will be subjected to DASP, is there anything she can do to soften the blow?

[Marisawright]

13 minutes ago, InnerVoice said:

I know she was previously married to an Australian so I assume she was here on a spouse visa. However, I'm fairly certain she didn't have permanent residency because she's often mentioned that she wishes she could return to Australia, but can't. 

She may be assuming she can't because her RRV expired and she's no longer in the relationship.  

@Ken, so that does that mean a temp visa holder can never avoid DASP, even if they leave the money in place until they retire and convert it to an income stream?  Or are they not allowed to do that?

[Nemesis]

5 hours ago, InnerVoice said:

Thanks @Ken, the short answer is I don't know.

I know she was previously married to an Australian so I assume she was here on a spouse visa. However, I'm fairly certain she didn't have permanent residency because she's often mentioned that she wishes she could return to Australia, but can't. So if she only ever had a temporary visa and will be subjected to DASP, is there anything she can do to soften the blow?

If she was there n a spouse visa for 9 years she would have got PR. And if she's 59 now, can she afford to wait a few more months until she is 60, as then it should be tax-free.

 

When I withdrew my Super I got lots of hep from QSuper themselves on the tax implications - has she tried emailing her fund? 

 

Edited August 20, 2023 by Nemesis

[InnerVoice]

18 hours ago, Marisawright said:

She may be assuming she can't because her RRV expired and she's no longer in the relationship.

 

13 hours ago, Nemesis said:

If she was there n a spouse visa for 9 years she would have got PR. And if she's 59 now, can she afford to wait a few more months until she is 60, as then it should be tax-free.

When I withdrew my Super I got lots of hep from QSuper themselves on the tax implications - has she tried emailing her fund? 

I've heard back from her and she did have PR, and as @Marisawright correctly assumed it was the travel aspect that had expired preventing her from returning to Australia, so fortunately she won't get hammered for tax. I'll mention to her about getting in touch with her fund to assess the tax applications though. Thanks again to everyone.

[Ken]

19 hours ago, Marisawright said:

She may be assuming she can't because her RRV expired and she's no longer in the relationship.  

@Ken, so that does that mean a temp visa holder can never avoid DASP, even if they leave the money in place until they retire and convert it to an income stream?  Or are they not allowed to do that?

Clearly it's not relevant to the friend as we now know she did have PR, but to answer your question, no a temporary resident can never avoid DASP as before receiving your Super you must meet a condition of release. Leaving Australia and no longer having a valid visa is the only condition of release that a temporary resident can meet. It doesn't matter if they have retired or are old enough to have retired or even are over 67, that does not meet a condition of release for them.

Edited to add:-

Actually departing Australia and no longer having a valid visa is not the only condition of release that a temporary resident can meet. The other conditions they can meet are:-

• death;
• terminal medical condition;
• permanent incapacity;
• temporary incapacity;
• an unclaimed money payment; or
• the superannuation provider receives a Release authority for excess contributions.

But as you'll see age or retirement are not on the list.

Edited August 21, 2023 by Ken

[Marisawright]

21 minutes ago, InnerVoice said:

. I'll mention to her about getting in touch with her fund to assess the tax applications though. Thanks again to everyone.

I wouldn't advise her to take the superannuation fund's advice.  Whoever she speaks to, isn't likely to have a clue. 

[Nemesis]

10 hours ago, Marisawright said:

I wouldn't advise her to take the superannuation fund's advice.  Whoever she speaks to, isn't likely to have a clue. 

Mine were excellent, backed up everything they said with ATO links and offered a referral to an independent advisor as well. they knew what money I had with them and told me how much I could access and when.

My reason for suggesting it here is that the advice from the fund is probably better than that from a bunch of well meaning amateurs on an internet forum ... (no offence meant to anyone!).....especially as the friend doesn't sound keen on paying for advice.

Edited August 21, 2023 by Nemesis

[Marisawright]

22 minutes ago, Nemesis said:

Mine were excellent, backed up everything they said with ATO links and offered a referral to an independent advisor as well. they knew what money I had with them and told me how much I could access and when.

Actually, I got excellent advice from my super fund as well, BUT it wasn't from the person in the call centre.  They have a financial advice arm and that's where the knowledgeable advice came from.  

[Nemesis]

1 hour ago, Marisawright said:

Actually, I got excellent advice from my super fund as well, BUT it wasn't from the person in the call centre.  They have a financial advice arm and that's where the knowledgeable advice came from.  

Yes thats better than the call centre. I always did everything by email. That way nothing got missed n notes from phone calls, and I could go back and clarify later.

[rammygirl]

They will, however be unable to advise on any UK tax implications. 

[InnerVoice]

On 21/08/2023 at 21:47, Marisawright said:

Actually, I got excellent advice from my super fund as well, BUT it wasn't from the person in the call centre.  They have a financial advice arm and that's where the knowledgeable advice came from.  

 

23 hours ago, rammygirl said:

They will, however be unable to advise on any UK tax implications. 

I recall paying $50 to QSuper for a one-off consultation about 10 years ago and being a little disappointed with the advice, which was mostly projection-based, and also focussed on ways for me to contribute more into QSuper - no surprises there. I also remember being quickly shutdown when I raised questions about how income streams from my UK pensions would affect my tax situation in Australia. That was when I joined this forum and started looking for help from a bunch of well-meaning amateurs - of which I now appear to be one 

[Nemesis]

8 hours ago, InnerVoice said:

 

I recall paying $50 to QSuper for a one-off consultation about 10 years ago and being a little disappointed with the advice, which was mostly projection-based, and also focussed on ways for me to contribute more into QSuper - no surprises there. I also remember being quickly shutdown when I raised questions about how income streams from my UK pensions would affect my tax situation in Australia. That was when I joined this forum and started looking for help from a bunch of well-meaning amateurs - of which I now appear to be one 

My questions admittedly were fairy simple - how soon can I get my hands on my money and how much will I lose in tax in OZ. I certainly wouldn't have paid QSuper for advice - if I'd had a big enough fund to really need advice I would have got an independent advisor in.

I did make an attempt to get professional advice from a very well-known company who deal with UK and Oz tax issues, but after having my zoom call (this was during covid) rearranged three times at very short notice, I was then given the brush off by the adviser who said he had a bigger client to deal with and as mine only involved a small amount of money (under $500k) I could wait a few weeks till he got round to me! Needless to say I told him where he could go and walked away. Very surprised as they usually get great recommendations, and thats the only reason I'm not naming them, probably a one-off, but be warned - if you aren't dealing with a fortune you may get short-shrift from advisers.