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Superannuation: Returning to Australia from UK. Tax on funds transferred greater than $AUS 300,000

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I am 59 and have $AUS 670,000 in a UK defined contributions pension. I am returning to Australia to live in February next year. I intend to  create a QROPS compliant fund and transfer money to this account.

 

Will I have to pay Australian tax of 45% of 370,000 (670,000-300,000)  = $AUS 160,000 ? 

 

"The maximum UK pension balance you can transfer using the Australian superannuation non-concessional contributions bring-forward rule is $300,000, based on figures for the 2018-19 financial year."

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ATO Certified

TaxTime Support

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Hi @be_christopher

 

Welcome to our Community.

 

The short answer is yes but only if you choose Option 2. I'll explain what that means later.

 

First of all, we have a great page on our website called tax on transfers from foreign super funds that you might want to have a look at if you haven't already. It contains a number of links that will be relevant to your situation.

 

You have to pay income tax on the applicable fund earnings component of a foreign fund transfer. However, none of your foreign super interest is treated as applicable fund earnings if you transfer it to Australia within six months of:

  • becoming a resident of Australia, or
  • your foreign employment terminating.

 

For more information about applicable fund earnings, refer to our website. The tax treatment of transfers from foreign super funds page provides some more detailed information.

 

A transfer of super from a foreign super fund to an Australian super fund is considered to be a contribution. Contributions can be counted towards your concessional contributions cap, your non-concessional contributions cap or neither cap.

 

For more information about the caps, check out the super contributions – too much can mean extra tax page on our website.

 

If you don't have any applicable fund earnings, generally all of the transferred super will count towards your non-concessional contributions cap. The foreign fund transfer amounts page explains how applicable fund earnings (if applicable) are counted.

 

The 2019-20 non-concessional contributions cap is $100,000. For individuals who are under 65, the three year bring-forward arrangement allows up to $300,000 to be contributed without exceeding the cap (subject to some conditions).

 

For more information about the non-concessional contributions cap and the bring-forward arrangement, refer to the non-concessional contributions page.

 

If the entire $670,000 transfer from your UK super fund is counted towards your non-concessional contributions cap and you are eligible to use the bring-forward arrangement, you will have an excess of $370,000 and be subject to additional tax.

 

We won't know that you are in excess until after your Australian super fund has reported the contributions to us and we have received your tax return. We will then send a determination to you advising you of the excess amount and what your options are.

 

For more information about what happens if you go over the non-concessional contributions cap, refer to our website.

 

You will get two options. If you don't choose an option, we will assume that you have chosen Option 1 and act accordingly.

 

Option 1 means that you will only have to pay tax on the associated earnings amount at your marginal tax rate. You can check out the individual income tax rates on our website.

 

Option 2 means that you will pay tax on the excess amount at the top marginal tax rate of 45% plus Medicare levy. On an excess amount of $370,000, the tax would be $173,900.

 

When you look at the associated earnings link, check out the example for Reginald as it explains the difference between the two options.

 

Hope this helps.

 

Thanks,

 

ChrisR

1 REPLY 1

Best answer

ATO Certified

TaxTime Support

Replies 0

Hi @be_christopher

 

Welcome to our Community.

 

The short answer is yes but only if you choose Option 2. I'll explain what that means later.

 

First of all, we have a great page on our website called tax on transfers from foreign super funds that you might want to have a look at if you haven't already. It contains a number of links that will be relevant to your situation.

 

You have to pay income tax on the applicable fund earnings component of a foreign fund transfer. However, none of your foreign super interest is treated as applicable fund earnings if you transfer it to Australia within six months of:

  • becoming a resident of Australia, or
  • your foreign employment terminating.

 

For more information about applicable fund earnings, refer to our website. The tax treatment of transfers from foreign super funds page provides some more detailed information.

 

A transfer of super from a foreign super fund to an Australian super fund is considered to be a contribution. Contributions can be counted towards your concessional contributions cap, your non-concessional contributions cap or neither cap.

 

For more information about the caps, check out the super contributions – too much can mean extra tax page on our website.

 

If you don't have any applicable fund earnings, generally all of the transferred super will count towards your non-concessional contributions cap. The foreign fund transfer amounts page explains how applicable fund earnings (if applicable) are counted.

 

The 2019-20 non-concessional contributions cap is $100,000. For individuals who are under 65, the three year bring-forward arrangement allows up to $300,000 to be contributed without exceeding the cap (subject to some conditions).

 

For more information about the non-concessional contributions cap and the bring-forward arrangement, refer to the non-concessional contributions page.

 

If the entire $670,000 transfer from your UK super fund is counted towards your non-concessional contributions cap and you are eligible to use the bring-forward arrangement, you will have an excess of $370,000 and be subject to additional tax.

 

We won't know that you are in excess until after your Australian super fund has reported the contributions to us and we have received your tax return. We will then send a determination to you advising you of the excess amount and what your options are.

 

For more information about what happens if you go over the non-concessional contributions cap, refer to our website.

 

You will get two options. If you don't choose an option, we will assume that you have chosen Option 1 and act accordingly.

 

Option 1 means that you will only have to pay tax on the associated earnings amount at your marginal tax rate. You can check out the individual income tax rates on our website.

 

Option 2 means that you will pay tax on the excess amount at the top marginal tax rate of 45% plus Medicare levy. On an excess amount of $370,000, the tax would be $173,900.

 

When you look at the associated earnings link, check out the example for Reginald as it explains the difference between the two options.

 

Hope this helps.

 

Thanks,

 

ChrisR

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