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Reporting Australian Superannuation on a US Tax Return

Geraldine Cornwall

Australians who file a US tax return are required to report their superannuation fund. Unfortunately, a superannuation fund is not considered a qualified retirement plan by the IRS, nor is it referenced in the USA-Australia tax treaty, and as a result the reporting process can be more complex than other foreign pensions.

There are two ways an Australian superannuation account is usually treated for US tax purposes.

The first and most typical is when the fund is comprised solely of employer superannuation guarantee contributions that are held with a large institution. This type of account is treated as an employee trust. The second is when the fund is treated as a foreign grantor trust. This is generally comprised of accounts funded by self-employment or employee contributions. Below is a discussion of the reporting requirements for each type of trust.

Employee Benefits Trust
The majority of superannuation accounts are treated as an employee benefits trust. What exactly needs to be reported can differ among taxpayers. If you are receiving employer contributions to your superannuation then the superannuation guarantee contributions are included in your income and subject to US income tax in the year the contribution is made.

If you are living in the US and there is only investment growth then some taxpayers may need to report the growth in the fund. It is important to note that if you pay US tax on any portion of your superannuation, including the investment income, then you need to keep a record of this income, referred to as “Previously Reported Income”. The reason for this is that when you start to receive distributions upon reaching retirement then you do not want to pay tax on those amounts already taxed by the US. In effect, contributions and growth taxed on the US return become your US cost basis in the fund.  As such, at the time of distribution, this basis can be returned tax free to the taxpayer and hence is not taxable on the US return.

In general, the foreign tax credits paid by the super fund are not available to provide relief from double taxation.

Foreign Grantor Trust
In determining whether a superannuation account is regarded as a foreign grantor trust, a taxpayer must assess the level of control held over the super.  Although the IRS has not made any rulings on what constitutes control for superannuation, generally the power to make decisions around the actual investments in the fund – as is the case with a Self-Managed Superannuation Fund (SMSF) – or the ability to make contributions to the fund are usually indicative of control, which would make the fund a foreign grantor trust.

Income from a superannuation fund that is treated as a grantor trust, will need to be reported on Form 1040. In addition, since the taxpayer is regarded as the owner and the beneficiary, they will need to file Forms 3520/ 3520-A. Further, if the foreign trust is invested in non-US mutual funds, then these investments are considered a Passive Foreign Investment Company (PFIC), and the foreign trust will also need to file Form 8621.

Reporting Superannuation on the FBAR
For most people you will need to report your superannuation on the FBAR in addition to the relevant foreign forms as part of your tax return.

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