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Non-resident Claiming Super at Preservation Age Tax

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Newbie

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Replies 6

Hi,

 

This is a question I can’t find any answer to on the ATO website, hoping you can help!

I held both a 417 and 457 visa in Australia and I know I am eligible to make a DASP claim. I also know thy after 6 months my superfund will transfer my super to the ATO and they will hold it as unclaimed super.

 

However, I do not want to make a DASP claim as they changed the tax to 65% if any amount in the fund could be attributed to being made under the 417 visa. (This feels unjust)

 

 

My question is this: Can I leave my super with the ATO when my superfund sends it to them as unlcaimed super until I reach preservation age?

 

Furthermore what % will I be taxed on my super at preservation age if I am a non resident and non-citizen of Australia? (will it still be 65% or will it be the normal tax rate?)

 

Thanks

 

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Best answer

Devotee

Replies 5

Hi TS1

 

I've looked into this when someone else asked a similar question.

 

I won't get into the policy design. But I will say that there are trade-offs involved in designing policies. The more equitable you try to make a policy the more data needs to be collected and reported, and that imposes costs on the system, and those costs are borne either by fund members (for additional administration required by funds) or by employees (for additional costs on employers) or by taxpayers (for additional costs on government departments). Sometimes you can look for rules of thumb to minimise the costs involved (eg the shift to a flat 50% capital gains tax discount) but then you're trading away some fairness to gain some simplicity.

 

Anyway. There's no way to not pay the 65% tax on the concessional component, which will generally be the whole amount unless you made personal after-tax contributions to super.

 

If you claim your USM amount that's been flagged as containing a contribution made while you held a working holiday maker visa you'll pay the 65% tax.

 

That's regardless of if you claim it now, or when you reach preservation age, or when you reach some older age.

 

It's regardless of whether you're a non-resident when you claim it, or you become the holder of a permanent resident visa, or you become an Australian citizen.

 

You also can't avoid the tax by rolling the money out of unclaimed monies to a super fund and then claiming it on retirement. The 65% tax will be deducted from the amount before the remainder is transferred to the super fund.

 

I'm an ATO employee voluntarily providing my time here

6 REPLIES 6
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Best answer

Devotee

Replies 5

Hi TS1

 

I've looked into this when someone else asked a similar question.

 

I won't get into the policy design. But I will say that there are trade-offs involved in designing policies. The more equitable you try to make a policy the more data needs to be collected and reported, and that imposes costs on the system, and those costs are borne either by fund members (for additional administration required by funds) or by employees (for additional costs on employers) or by taxpayers (for additional costs on government departments). Sometimes you can look for rules of thumb to minimise the costs involved (eg the shift to a flat 50% capital gains tax discount) but then you're trading away some fairness to gain some simplicity.

 

Anyway. There's no way to not pay the 65% tax on the concessional component, which will generally be the whole amount unless you made personal after-tax contributions to super.

 

If you claim your USM amount that's been flagged as containing a contribution made while you held a working holiday maker visa you'll pay the 65% tax.

 

That's regardless of if you claim it now, or when you reach preservation age, or when you reach some older age.

 

It's regardless of whether you're a non-resident when you claim it, or you become the holder of a permanent resident visa, or you become an Australian citizen.

 

You also can't avoid the tax by rolling the money out of unclaimed monies to a super fund and then claiming it on retirement. The 65% tax will be deducted from the amount before the remainder is transferred to the super fund.

 

I'm an ATO employee voluntarily providing my time here

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Newbie

Replies 4

Thanks for the reply.

So what if my super is still with my superfund now, and I become a permanent resident of Australia (and subsequently a citizen down the track) before it’s gets transferred as USM?

If no DASP claim is being made and I then reach preservation age, surely they can’t tax the super at 65%?

I’m absolutely gobsmacked by the fact that this higher tax would not apply should someone have kept the WHM super in a different fund to the one they then used for other visas such as 457 and PR.

It makes no sense as the government and ato advises everyone that keeping your super in one place is the better thing to do!
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Devotee

Replies 3

Hi TS1

 

From a quick read of the law it seems that becoming a permanent resident or having applied to become a permanent resident stops the amount from being transferred to the ATO as USM under the Former Temporary Resident category.

 

And then it wouldn't become a DASP, so the DASP tax rate wouldn't apply. I'll follow this up next week and confirm this is the case.

 

And you're right, with the way the rules work it seems to be better for people to keep their WHM super contributions in a separate account to other super contributions, as this would restrict the 65% tax rate to only the WHM contributions.

 

I'm an ATO employee voluntarily providing my time here

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Newbie

Replies 2

Thanks again!

I would definitely be interested in clarification on that point.

Taking it even further, it would be valuable to know what would apply if someone becomes a perm resident which stops it going to the ATO as USM, but then leaves australia for more than 5 years. Does the PR then get revoked and we come full circle back to the start where the superfund transfers to ATO and then a DASP claim must be made?

It’s strange because even if the ATO has the money as USM, I don’t see how they can say it’s a DASP claim being made if you’re trying to access your funds as a non-resident at preservation age.

Furthermore the apparent loophole with separating WHM contributions from other visas just seems ridiculous and needs to be revised i my opinion.

What if I were to calculate my WHM contribution amounts now, leave them in my current fund, and then roll the remaining funds over to a new superfund?

Is there a way to start a campaign to get these laws revisited?

Thanks
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Devotee

Replies 1

Hi again

 

I've been looking into this some more.

 

If the ATO sends a notice to a fund requiring the fund to forward money it holds for the person named in the notice as being a former temporary resident (FTR), and the money then comes to the ATO as unclaimed super money (USM), any subsequent payment of that USM amount will be a DASP and be subject to the relevant DASP tax rate(s). (Except in the hopefully rare situation that the notice was sent in error - ie the person wasn't an FTR at the time the notice was sent).

 

If an amount never comes to the ATO as FTR USM (generally because the person was never an FTR and therefore the ATO never sent a s20c notice) then the payment won't be a DASP unless the person lodges a DASP claim directly with the fund and is eligible to receive this payment.

 

A s20c notice won't be sent to a fund for someone who holds a temporary or permanent residency visa, or who is an Australian or New Zealand citizen, or who has applied for a permanent residency visa and that process hasn't been finalised yet.

 

With the scenario you've outlined of someone becoming a permanent resident and then subsequently no longer holding the permanent residency, yes, this appears to fit the FTR definition. Because the carve-out for the holder of a permanent residency visa would no longer apply at that point. So the ATO would then send the s20c notice to the fund.

 

Your question about calculating the contributions made while you held the WHM visa and rolling the remainder of the balance to another super account is an interesting one.

 

The Super (DASP) Tax Act says if a DASP is paid on or after 1 July 2017, and includes amounts attributable to contributions made while the person held a working holiday maker visa, the relevant tax rate for the taxable component becomes 65%.

 

It could be argued that if you've split the super account into amounts that were attributable to those contributions, and amounts that weren't attributable to those contributions, then it's only the first account that should attract the 65% tax rate, whereas the second account should attract the 35% tax rate.

 

But this is getting into legalistic territory. You'd want to seek a formal opinion from the ATO on this.

 

I'm an ATO employee voluntarily providing my time here

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Newbie

Replies 0

That’s a great response. Thanks very much for your time and insight!