Superannuation changes for temporary residents — the government’s heavy hand will not attract offshore executive talent

An “initiative” contained within this year’s federal budget runs counter to the prior government’s attempt to make high-taxing Australia (relative to the US and UK) more palatable to offshore executive talent. It also does not help the country attract non-executive talent.

Under a government proposal that purports to address the long-standing problem of lost and unclaimed member superannuation accounts, temporary residents’ superannuation will be transferred automatically once a year to the Australian Taxation Office, where it will earn no interest unless the visitor becomes a permanent resident. If a temporary resident then leaves the country and does not claim the money within five years of departing Australia, the funds will be forfeited to consolidated revenue.

Under the revised arrangements, employers will be able to pay temporary resident superannuation contributions to either a superannuation fund or directly to the tax office.

Each year the ATO and Department of Immigration will use computerised data matching to identify funds holding superannuation balances for temporary residents. The funds will be contacted and required to transfer the balances. The obligation on funds to transfer these amounts will be structured as a special tax of 100% of the withdrawal benefit in the temporary resident’s account.

It will be a separate and distinct tax.

The main reason for the strong condemnation of the plan by industry bodies is that it is unfair and represents retrospective legislation.

It is proposed that these measures will apply to all future, current and previous temporary residents, with the exception of New Zealanders and those who have become permanent residents. The Association of Superannuation Funds of Australia says it should apply only to new temporary residents and only after they have left permanently.

When he released the consultation paper on the matter in May, Superannuation Minister, Nick Sherry, said the rules are consistent with the manner in which Australians who work overseas are treated when they return home. However, some in the industry have argued that while this may be true in respect of deductions made under other countries’ social security or national insurance arrangements, it is doubtful that it applies to private superannuation or pension plans run by employers.

Under the rules prior to the 2008 budget, temporary residents are able to claim their superannuation after permanently leaving Australia. This payment is the value of their superannuation minus tax, which is 30% for the taxed proportion of a benefit and 40% for an untaxed proportion. The new system will allow those who permanently depart Australia to claim the superannuation from the tax office within five years, with the payments subject to withholding tax.

However commendable attempts to reduce the problem of unclaimed superannuation accounts might be, the retrospective aspect and the intention to deny interest to temporary residents during their time in Australia appears very heavy-handed.

The plan also seems to be counter to relatively recent initiatives to facilitate transfer of executive skills into Australia through a more generous approach to the taxation treatment of the worldwide income of foreign nationals (see HERE).

© Guerdon Associates 2024
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