Is the Fund or any Australian resident member subject to tax in Australia on contributions made to the Fund?
Generally speaking neither the Fund nor its Australian resident members should be subject to tax in Australia on employer or member contributions to the Fund.

Is an Australian resident member subject to tax in Australia on the earnings of the Fund?
On the basis that the Fund is a superannuation fund, Australian resident members should not be taxed on earnings of the Fund so long as it is an employer sponsored and maintained fund.

Is the Fund subject to Australian taxation?
The Fund will be taxed in Australia as a non-resident.  This means that income and gains that are not sourced in or related to Australia should not be subject to Australian taxation in the Fund.

What constitutes the Fund being employer-sponsored and maintained?
An employer-sponsored superannuation fund is created by the employer establishing the Fund and making contributions to the Fund.  The Fund is maintained by the employer where employer contributions are held for the benefit of the nominated employees and used to pay any maintenance costs relating to the Fund.  Alternatively, the Fund is maintained where the employer directly covers the maintenance costs relating to the Fund on an on-going basis.

Can a member retain accumulated entitlements within the Fund after retirement?
A member can take advantage of an option given by the Fund upon retiring from an employer to retain his or her accumulated entitlements within the Fund.  Any earnings accumulated within the Fund after the member becomes an Australian resident will be taxed in Australia, but only upon payment to the member.

Is a member subject to Australian tax on benefits paid from the Fund where the member has been a resident of Australia for less than 6 months?
Lump sum benefits withdrawn from the Fund by an Australian resident member are not taxable in Australia where:

• the member has been an Australian resident for less than 6 months when they receive the benefit payment; and
• the amount paid out to the member does not exceed the amount of benefits in the Fund vested in the member at the time when they receive the pay out. 

Generally, an Australian resident member will not be permitted to withdraw more than their vested benefits in the Fund and consequently, only the 6 month rule is generally relevant.

Is a member subject to Australian tax on benefits paid from the Fund where the member has been a resident of Australia for 6 months or more?
Broadly, an Australian resident member who withdraws lump sum benefits from an allocated or discretionary account of the Fund at a time after they have been an Australian resident for more than 6 months will not be taxed on that part of the lump sum which relates to:

• benefits which are vested in the member before they became an Australian resident; and
• contributions made to the Fund after the member became an Australian resident.

Any earnings accumulated within the Fund after the member becomes an Australian resident will be taxed in Australia, but only upon payment to the member. 

The above discussion summarises section 305-70 of the Australian Income Tax Assessment Act 1997 ("the 1997 Act") which is the key provision that taxes Australian resident members on lump sum withdrawals from the Fund.  Under that section an Australian resident member who receives a lump sum payment from the Fund is required to include in their assessable income (and be taxed at their individual marginal tax rate) on an amount determined using the formula outlined in section 305-75 of the 1997 Act and which can broadly be summarised as follows:

Amount included in assessable income

=

Vested Benefits

-

{

Pre-Australian Residence Vested Benefits

+

Australian Residence Contributions

}

x

Resident Days --------- Total Days

+

Australian Residence Transfers

where:

• Vested Benefits means the total benefits in the Fund which are vested to the member just before the lump sum payment;


• Pre-Australian Residence Vested Benefits means the amount of benefits in the Fund which are vested in the member just before they became an Australian resident;


• Australian Residence Contributions means contributions made to the Fund by a member or an employer of the member on or after the day when the member becomes an Australian resident;


• Australian Residence Transfers means amounts transferred to the Fund from another foreign superannuation fund on or after the day when the member becomes an Australian resident, and which would have been taxable to the member but for the fact that the amounts were paid to another foreign superannuation fund;


• Resident days means days since the member has been a member of the Fund that they have also been resident in Australia;


• Total days means days since the member has been a member of the Fund.

In effect, a member is subject to tax in Australia only on the growth of the Fund whilst the member is a resident of Australia for tax purposes.

The above analysis is based on the assumption that the member makes a lump sum withdrawal of their benefits in the period when they first become a resident of Australia.  Different potentially tax consequences may arise where the member has multiple periods of Australian residency during their membership of the Fund.

This statement was reviewed by Baker & McKenzie based on particular assumptions in connection with the specific issues raised in connection with Australian taxation.  This statement is of no further application and does not represent a general explanation of the issues or a full review of the subjects covered.  This statement should not be relied upon in any other context by any person.  Professional advice should always be sought before any action is considered based on the above and no liability is accepted by  Baker & McKenzie or any of its partners consultants or employees in respect of any action which might be taken or refrained from being taken by any person as a result of the contents hereof.  No reproduction of the whole or any part of the contents of this advice is permitted without the prior written consent of both the author and Baker & McKenzie.

Baker & McKenzie is not involved in the marketing of membership of the Fund and its role should not be interpreted to mean that it encourages any party to invest in the Fund.