# Australian/US Citizen with Superannuation



## Shellberight

Hello everyone, I am hoping you can offer some helpful advice:

I am an Australian born person with US Citizenship (2015), living and working in the USA.

Over the past two weeks, I have become aware of needing to report my Australian superannuation on my US taxes. I have no Australian bank accounts or other financial interests in Australia other than my superannuation. I have filed my US 1040 tax return every year from my first tax year of 2008 to the soon-to-be 2016 return. After reading many posts on the expat forum, I now realize that when I validated my green card in 2007 this would have started my requirement to report worldwide income.

Any employer contributions to that super account ended in 2007 and I have not made any contributions either. I have read so much about superannuation as it relates to US tax reporting, that it is one blurry mess in my mind. I have read of super being treated as a PFIC, as a foreign grantors trust, as a non-compliant employer retirement scheme. I really had no idea that my Australian retirement pension, an account that is not available to me until I retire, would be taxed in the US. I now realize that the US views this super as taxable income. 

Q: Would any members like to share all forms I would need to include for reporting this super as an Australian/ US citizen who lives in the US? Also I am guessing I would need to amend previous tax year returns, and if, so how far back? I have read about the notion of a soft disclosure as well. I am hoping for a simple fix ( I know, a big ask).

I have only used Turbo Tax and have not consulted any tax professional. I have read similar questions and answers on the Turbo Tax forum as well, but not quite my situation.

Q: Additionally, from the aspect of US tax reporting; is it easier to be working in Australia (with US citizenship) and doing the 2555 and FBAR and whatever other forms? I may have a job opportunity back in Australia later this year. All I have read to date is that there are many Americans living in Australia who have obtained AU citizenship and are renouncing their US citizenship because of the tax issues. Is it really that bad for complying with US tax reporting while in Australia? I don't know, so that is why I am asking. I have read about the need to fix the US/AU tax treaty so the superannuation would be viewed as a proper retirement account and not as a tax haven.

Any advice on either question would be extremely helpful and appreciated. 
Sorry this post was so long.


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## Moulard

A long question deserves a long response...

You definitely need to report your interest in Superannuation. How and what you have to report is not clearly defined. Even the IRS is not clear on how to treat it. Hardly surprising that Super does not neatly fit into the Internal Revenue Code. Ultimately we are all dependent on guidance from the IRS or a new technical memorandum on the dual taxation treaty.

Going Forward... What to report, and how to report it will depend on the nature of your account. 

What do you need to file...

FBAR - not a tax form per se, but if you meet reporting thresholds you must file it by 30 June each year. there is no extension.. but I would recommend back filing for 5 years... there is a drop down menu on options to explain why you are filing late.

Schedule B - to show your interest in a foreign account or trust

Form 8938 - Statement of Specific Foreign Assets 
There are reporting thresholds that may mean you do not have to file this. 
If you have kept an Australian bank account you have to report that too.. ALL foreign accounts must be reported if you cross the magic threshold..

What follows is my quick interpretation of Sections 402(b), 409A and 414(q)... It goes without saying the IRS may disagree...

If you have a standard industry type fund, then it is likely to be considered an Employees Trust. Whether it can be treated as a grantor Trust, a non-grantor trust, or partially both will depend on a number of complicated factors that tie into the nature of the trust deed and whether or not you make or made personal (post tax) or salary sacrifice (pre-tax) contributions.

Super will be treated by the IRC as a non-qualified deferred compensation plan - and a funded plan at that, and thus be treated under Section 402(b) but exempt from the punitive penalties of 409A under the exemption for Broad-based foreign retirement plans 409A-1(a)(3) (v) 

If you have a self managed fund, then it is definitely a Grantor trust and you will need to file Form 3520. You then need to report both the contributions to the fund, and the growth each year as income. But as you are considered the owner of the trust you can also deduct fund expenses etc.

If you have a typical industry fund in which you have made little or no contributions (either as post tax, or salary sacrifice) AND you are not a 5% owner of any company that made employer contributions then you are not likely to have to report the earnings. And.. as you have no employer contributions there is nothing to report there too..

If you have a master trust then I can't help you.. I haven't really dug into the trusts sections deeply enough...

So on to your question 1. 
Take a look at the instructions for 1040X. Generally you only need to amend returns up to 2 or 3 years back. If it is only a reporting issue (ie. you failed to file Form 8938) then go ahead and do that. If you needed to report the income earned within the trust because all or part of it is considered a grantor trust, or you are considered the owner of the trust for tax purposes then I wouldn't accept advice from a random person posting on a expat forum... and neither should you.

As to your second question...

The IRS and INS view of permanent residency is different. The IRS will treat you as a US Permanent Resident until you return your green card and submit an I-407. Until you do so you will still have to file a US Tax return reporting all of your global income. 

There will be a couple extra forms that you will want to consider but filing is no more onerous or difficult.

Form 2555 Foreign Earned Income Exclusion. (there is also an EZ version) 

Form 1116 Foreign Tax Credit - handy if you cannot exclude, deduct or exempt all of your income. The 1116 is crazy complicated and the instructions and forms are terribly convoluted. You have to fill out multiple versions based on the type of income that has been taxed and have to pro-rate everything so that you do not claim a tax credit on that portion of taxes where the income has been excluded.

Other things to consider if you return to Australia...

If you do not intend to return to the US, and/or as soon as you have been out of the US for 2 years consider submitting an I-407 along with your green card in person to the nearest Consulate. Failing to do so, may mean you end up needing to do the expatriation tests that apply to all US Citizens and long term permanent residents.

As an Australian Citizen and a Resident of Australia then in theory you could make a claim under the US-Australia Dual Taxation convention .. but doing so will effectively revoke your US Permanent Residency.


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## Shellberight

Thanks Moulard for your detailed response regarding my situation. I have been ill so it's been all quiet on the tax return front. 

To restate, I am Australian-born with US citizenship currently living and working in the US. I have no foreign bank accounts in Australia only the super account.



Moulard said:


> "If you have a typical industry fund in which you have made little or no contributions (either as post tax, or salary sacrifice) AND you are not a 5% owner of any company that made employer contributions then you are not likely to have to report the earnings. And.. as you have no employer contributions there is nothing to report there too.."


My Australian super is an industry fund (it's a government public service fund covering my state employment from 1992 to 2007). I have made no contributions to this fund since 2007, nor have received any distributions as I have not reached retirement/preservation age. I moved to the US in 2007.

In working on my 2016 taxes today, I have listed my Australian superannuation on Schedule B - Part III and on Form 8938 - Parts II (Other Foreign Assets Summary) & VI (Detailed Information) and have listed the balance (as at December 31 using IRS exchange rates) as US$251,028 in Parts II and VI respectively. (I will be filing my first F-BAR this year, listing the super account and back filing for the previous 5-6 years and amending my past 2 tax returns.)

I have calculated the growth (in US dollars) of my Australian super for 2016 calendar year as $US7,448. This is the increase in the balance of the fund from the previous year. I have worked out four previous years calculations today with the help of four generous Chemex pour over coffees. 

To make sure my understanding is correct, my question is:
Is this 'growth' amount listed as income on Line 21 on my 1040? 
Is this unrealized gains on my super treated as US reportable income?

Many thanks for your advice and to anyone else reading this post.


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## Moulard

I hope you corrected that coffee.. as the Italians would say...

Apologies. The response to what appears to be a yes-no questions is not going to be straight-forward and extremely long….


First the short version of the answer then the long version

Is this 'growth' amount listed as income on Line 21 on my 1040?

-- Given you have a government sponsored scheme I would only be reporting contributions and not growth

Is this unrealized gains on my super treated as US reportable income?

-- Yes.. but only when it is disbursed.

Now ... the long (perhaps too long) version..


I am guessing from what you said is that you have an account within the Public Sector Services Scheme, the State Authorities Scheme, or one of the other public sector schemes that are out there... it doesn't matter which one it is. I will assume therefore that your Australian employer was a government agency of some level. It doesn’t matter which so long it was Public. 

If I was in your shoes...this is what I might do. 

For each year going forward until you hit your preservation age...


File Schedule B
File Form 8938 for each year that you exceed the reporting threshold
File FBAR for each year that you exceed the reporting threshold

Personally given what you have said I would accept the risk and NOT report the growth for two primary reasons.


I doubt you would be considered having control as defined in Sections 671-679– compare the trust deeds for your fund against the IRC… to ensure you are comfortable https://www.law.cornell.edu/uscode/text/26/subtitle-A/chapter-1/subchapter-J/part-I/subpart-E

It is quite possible that as you have a government sponsored scheme, the trust would be considered a government trust and thus exempt under treaty provisions.

Each year before doing your returns, I would troll around and keep an eye out for an IRS rulings, treaty amendments or technical memoranda that gives you better guidance and amend or adapt above as necessary. If something changes you can always file an amended return if necessary.

Once you pass the preservation age, and can access the funds the entire balance will have been constructively received and thus is subject to income tax.

For your US Tax return in that year immediately following reaching your preservation age then I would report the distributed amount AND use Form 8833 to claim treaty benefits on the amount, so you do not get hit by US taxes on it all. 
How it gets reported will likely vary on whether you get it as a lump sum, or use it to buy a pension may vary exactly what and how you report it that year and every year thereafter.

This assumes that all contributions were from a government body. Federal, State, Local, Universities… doesn’t matter so long as it is Public.

Under Article 19 of the Dual Taxation convention between the US and Australia Government Remuneration is exempt from taxation

Article 19 reads...

_Wages, salaries, and similar remuneration, including pensions, paid from funds of one of the Contracting States, of a state or other political subdivision thereof or of an agency or authority of any of the foregoing for labor or personal services performed as an employee of any of the above in the discharge of governmental functions to a citizen of that State shall be exempt from tax by the other Contracting State._​
There is ABSOLUTELY NO GUIDANCE that I have ever been able to find from the IRS about how to treat amounts that are related to earnings prior becoming a US Person (Resident or Citizen, it doesn’t matter which).

If not all of the balance is treaty protected, you may only be able to exempt the part of it that is government remuneration

Dig around and calculate and then file away for future reference

The Balance of the fund on the Dec 31 immediately prior to you becoming a US Resident
The portion of that balance that is Government Related
The portion of the balance that is non-government related

That way it makes it easier to determine what portion of the disbursement might not be subject to US Taxation (either because it is government or because it was earned before it was subject to the reaches of the IRS) 

If at some point there is a revenue ruling or other revenue regulation at some point in the future you can then refer to those figures.


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## Shellberight

Thanks again Moulard for your helpful advice!



Moulard said:


> I hope you corrected that coffee.. as the Italians would say...


But of course! The fourth coffee became a cold-brewed Kona vanillia-macadamia drink with a healthy dose of Kahlúa, served with a modest slice of homemade tiramisu! 



Moulard said:


> It is quite possible that as you have a government sponsored scheme, the trust would be considered a government trust and thus exempt under treaty provisions.


Yes, this clearly defines my superannuation! Thanks for the clarification!



Moulard said:


> Under Article 19 of the Dual Taxation convention between the US and Australia Government Remuneration is exempt from taxation
> 
> Article 19 reads...
> 
> _Wages, salaries, and similar remuneration, including pensions, paid from funds of one of the Contracting States, of a state or other political subdivision thereof or of an agency or authority of any of the foregoing for labor or personal services performed as an employee of any of the above in the discharge of governmental functions to a citizen of that State shall be exempt from tax by the other Contracting State._​


Would you or any other members suggest that because this would be my first time of submitting Form 8938 to the IRS that I submit Form 8833 to explain my treaty position now instead of waiting till preservation age? I just want to make sure there isn't an additional form (or written statement) required at the same this 8938 form is submitted--to explain in writing why I am taking a particular treaty position.

Thanks again for your advice!


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## iota2014

Shellberight said:


> Would you or any other members suggest that because this would be my first time of submitting Form 8938 to the IRS that I submit Form 8833 to explain my treaty position now instead of waiting till preservation age? I just want to make sure there isn't an additional form (or written statement) required at the same this 8938 form is submitted--to explain in writing why I am taking a particular treaty position.


Definitely not, would be my advice. As I understand it, the IRS hasn't yet ruled on how Australian superannuation should be treated. Until they do, I would suggest that it's perfectly reasonable for you to assume it's social security, and just not report it - relying not on the treaty but on the IRs's own published advice:



> Payments or the rights to receive the foreign equivalent of social security, social insurance benefits or another similar program of a foreign government are not specified foreign financial assets and are not reportable.


https://www.irs.gov/businesses/corporations/basic-questions-and-answers-on-form-8938#FPensionsQ1

No need to file 8833. Filing 8833, when you're not clearly required to and you're not sure of your ground, is like an invitation to an argument you may not win. Far better, I would suggest, to assume the Super is social security and just leave it off.


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## iota2014

Shellberight said:


> Q: Additionally, from the aspect of US tax reporting; is it easier to be working in Australia (with US citizenship) and doing the 2555 and FBAR and whatever other forms? I may have a job opportunity back in Australia later this year. All I have read to date is that there are many Americans living in Australia who have obtained AU citizenship and are renouncing their US citizenship because of the tax issues. Is it really that bad for complying with US tax reporting while in Australia? I don't know, so that is why I am asking. I have read about the need to fix the US/AU tax treaty so the superannuation would be viewed as a proper retirement account and not as a tax haven.


Bear in mind that once you've reported your Superannuation Fund to the IRS as US-taxable, if you subsequently chose to return to Australia and then decided to renounce your US citizenship, the Superannuation Fund could help to tip you into "covered expatriate" status - i.e. you could end up paying the extremely punitive exit tax.

If you assume the Superannuation if just a "social security type program" (https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements), you don't have to report it on either FBAR or 8938.


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## Moulard

this is really long... sorry...

The reality is that even the IRS don't know how to treat superannuation, and we are all guessing until there is some sort of ruling or regulation that gives us guidance.

That won't happen anytime soon, given recent executive orders that have basically put a stop to the publication of all regulations except private letter rulings. Equally on the Australian side, there is no urgency at all within the government to try to deal with it at a treaty level.

So how will the IRS deal with Super? This FOIA request at least gives some insight into some of the internal thinking 

https://www.bragertaxlaw.com/files/lbi_responsive_docs.pdf

Its an interesting read if you are interested in that sort of thing, and clearly indicates conflict within the IRS about what and how to deal with it. 

Nothing that I have suggested is outsides of the bounds of what is in that partial FOIA release. 

But it does suggest that the current position in the IRS is leaning towards treating Super under 402(b)

SBR has one great advantage over many of us. The super fund in question is likely a fund for government employees and the US-Australia Dual Taxation Treaty clearly exempts Government Remuneration. 

Further there are private rulings that indicate that government trusts are equally exempt under the treaty. So long as the trustees of SBRs fund has more government employees than private ones, it remains a government trust.

Treating it under 402(b) seems to me like a reasonable middle ground that aligns with internal IRS thinking as per that FOIA document. 

SBR can be compliant and yet has a treaty ace up the sleeve if it is ever required.

The 402(b) approach means no tax is payable until it is disbursed in light of the fact that there are no longer any employer contributions. Once past the preservation age SBR can pull out the treaty to override any tax due on the distribution as exempt under the treaty as a government pension. Or for that matter wait until there is better clarity.

On the social security point…There is a fair bit out tghere that clearly indicates that the IRS does not see Superannuation as the equivalent of social security. Even the totalisation agreement specifically excludes super. Social Security = Government payment. Social Security /= Private Pension . The old age pension is the equivalent to social security -- Super is not. 

The Australian system is a three legged one. 1) Government old age pension; (treaty exempt) 2) private pension (ie superannuation) and 3) savings. The position of the IRS is clearly heading in the direction that Superannuation is effectively a private pension not a government one. Same would hold on savings interest and returns.

My understanding is that there are significant reservations within the US, given the ability to shield income from taxation via salary sacrifice. The US sees this as a tax shelter mechanism. It is for this reason alone that Super has been excluded from both the tax and totalisation agreements.

I think the exit tax concern, in light of the fact that SBR is an ex government employee, I see it is a red herring. Yes, at some point in the future SBR may be considered a covered individual. However…. For the purposes of assets it is quite likely that the super balance is a government pension and thus exempt.

I have not read the technical memorandum on the US-AUS treaty for a while but I believe the exit tax is likely to be within Chapter 1 and thus falls under the remit of the treaty. If I have some time over the weekend I may delve deeper. 

I still believe that if SBR wants to be compliant (or at least be as compliant as is possible without a super specific ruling from the IRS) then the best approach is to report the account. Then, on distribution, claim treaty protection for that portion of the distribution that is related to their government employment.

Without certainty within regulation or within treaty there is of course risk. But I believe for SBR that risk is mitigated by the treaty.


If SBR decided that it was better to completely ignore the Super account is there, then so long as they haven’t updated their address no one could ever be the wiser. SBR could easily feign ignorance, and until or unless there is a transfer to a US based account, no one in the US would know, or for that matter be able to determine that SBR is now considered a US person.

SBR could even do both.. don't report the asset, feign ignorance, and then under a highly unlikely audit, take a treaty based position if required to amend the return.


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## iota2014

It all depends what the OP's priorities are.

a) Some dual citizens may be anxious to try to figure out what the IRS is likely to want, and comply with that.

b) Others just want to understand what the IRS could or is likely to try to enforce, and comply with that.

In the case of Australian Superannuation, there hasn't yet been a ruling, let alone a test case. What's more, this particular case, if I understand correctly, does not concern US source income or income earned by a USC. It's a retirement fund earned by the OP before s/he became a USC, and is really none of the IRS's business in a rational world.

If I were in the OP's shoes, since the IRS hasn't ruled, instead of trying to figure out what they're *likely* to rule I would just treat the Superannuation as social security and not report it - knowing that if the IRS should come asking questions, I could just apologize for my misunderstanding and amend the return. 

But it all depends on the OP's personal priorities. We all have to do what lets us sleep at night.

In any case - if the OP decides to rely on Article 19, it's not necessary (and I would say not advisable) to file 8833. (https://www.irs.gov/businesses/the-taxation-of-foreign-pension-and-annuity-distributions). I took the position that neither of my pensions (UK State Pension, UK Government Pension) was reportable, and I didn't file 8833, and had no problems.



> I think the exit tax concern, in light of the fact that SBR is an ex government employee, I see it is a red herring. Yes, at some point in the future SBR may be considered a covered individual. However…. For the purposes of assets it is quite likely that the super balance is a government pension and thus exempt.


Do you know of a ruling that says a government pension doesn't count for calculating net worth for exit tax purposes? I'd be interested to hear.


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## iota2014

One more thought - before relying on Article 19 the OP might want to take note of how Article 19 interacts with the Saving Clause - particularly as the OP is resident in the US.

See IRS Publication 901, p.27:



> Salaries, wages, and similar income, including pensions, paid by Australia, its political subdivi* sions, agencies, or authorities to its citizens (*other than U.S. citizens*) for performing govern*mental functions as an employee of any of the above entities are exempt from U.S. income tax.


And see also the Treaty Technical Explanation:



> This Article provides that remuneration, including pensions, paid by one of the Contracting States or a political subdivision, local authority or agency thereof to a citizen of that State for the performance of governmental functions is exempt from tax by the other State. If such remuneration is paid to an individual who is a resident, but not a citizen, of the employing State, whether it may be taxed by the other Contracting State is determined in accordance with the provisions of Articles 14 (Independent Personal Services), 15 (Dependent Personal Services), 17 (Entertainers) or 18 (Pensions, Annuities, Alimony and Child Support), as the case may be. *If such remuneration is paid by one of the States to an individual who is a resident of the other State (or by Australia to a citizen of the United States), it may be taxed by that other State (or by the United States in the case of U.S. citizens) in accordance with paragraph 3 of Article 1 (Personal Scope).* If such remuneration is paid to an individual who is not a resident of either State (and is not a citizen of the United States), it is not covered by this Convention.
> Whether functions are of a governmental nature is determined by reference to the concept of a governmental function in the State in which the income arises.


Emphasis added by me.


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## Moulard

It had been some time since I read the treaty carefully.. I have done so now...

You are right...thank you for picking me up on that. You have saved me some grief in the future.. as I too have spent time in the government sector although I am now in private enterprise. 

SBR is a US Citizen and an ex-AU government employee and thus not protected by the exclusion in the savings clause for government remuneration and pensions as Article 19 excludes US citizens who work for the Australian government.

SBR will have to pay tax on the distribution on reaching the preservation age, less the amount already taxed by the US (if that is, SBR reported Super contributions as income while earning a wage in Australia).

I am sorry to have led SBR astray. But up to preservation age, I think the advice still stands if the aim is to be compliant, report interest in super fund each year. So long as there is no distribution there is no income to report. Indeed, I would recommend not touching the super. Rolling it over, changing investment type - for example from balanced to high is likely to be treated as constructive receipt and thus bring forward taxation. 

On distribution, the withdrawal tax of 15% could be used to offset the tax due via a foreign tax credit, but there very well could be a sizable US tax bill unless there is clarity given between now and retirement via a relevant Ruling, Regulation or Treaty clarification.

I don't think that Super can be considered social security. The totalisation agreement specifically excludes superannuation and there are private rulings on pensions that say that only government pensions like the Australian old age pension are in fact covered. Super can only really be classified as a private pension.

It will boil down to a question of the level of compliance that SBR wants to maintain. 

Unfortunately the decision may have significant implications years down the track.


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## Shellberight

Moulard said:


> SBR is a US Citizen and an ex-AU government employee and thus not protected by the exclusion in the savings clause for government remuneration and pensions as Article 19 excludes US citizens who work for the Australian government.


I am Australian born and worked in Australia with no ties to the USA prior to receiving the green card in 2007 and then moving to the USA with citizenship (2015). This is a super account established prior to becoming a US tax resident. 

Given this thread has seen some views, I can only imagine there are other dual Australian citizens living in the USA in the same boat with under-reported superannuation accounts.

Thanks to you both Moulard and Iota2014 (yes I was aware of the savings clause). 

Thanks for all your suggestions, however, I feel with such conflicting opinions I will require professional advice.

Cheers.


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## Moulard

Even a tax professional with extensive experience in trust law in Australia and US tax law will be taking an educated guess.

The reality is however, no one knows for sure, because there has been no published guidance from the IRS. 

The only way to get the certainty you desire is to request and pay for a private letter ruling.

If you read that Freedom of Information link.. it is quite clear that internally their position is firming up. Its just not a priority for them to make regulation on it.

Below is I think the *Unofficial *position that they came up with...

Australian Superannuation Fund 
•	Below is not an official position and it still may be determined that the determinations regarding the Australian Superannuation funds will be made on a case by case basis. 
•	Generally employer funded Superannuation funds qualify for IRC 402(b) treatment 
•	The employer contributions are taxable to the employee. 
•	Earnings in the fund are tax deferred until distribution. Distributions are taxable under IRC 72. ' They are not considered a Foreign Grantor trust - therefore there is not a Form 3520 or 3520-A filing requirement i​•	Personally funded Superannuation funds are considered Foreign Grantor Trusts 
•	This includes funds set up by self-employed individuals 
•	Forms 3520 and 3520-A required as it is a Foreign Grantor Trust​•	Rollover from an employer funded Superannuation fund to a personally funded Superannuation fund would create a taxable event for the distribution and a Form 3520 filing requirement for a transfer to a foreign grantor trust, 
•	Rollover from an employer fund to another employer fund would still qualify for deferred taxation. 
•	The Superannuation Fund is includable in the MOP if there is any income tax non compliance associated with the fund (i.e. employer contributions not included in taxable income). 

Based on this alone I think Iota's position of treat it like Social Security is of higher risk, particularly given under the 402(b) interpretation no tax is payable now. I say higher risk, only because you are in the US.

The biggest question is that 402(b) is about taxed deferred compensation, but super is not tax deferred, only preferentially taxed. (contributions are taxed at a concessional rate). But that is irrelevant as you have no current contributions.

Iota was however perfectly correct in pointing out that the advice I gave on what to do on retirement, rollover or any similar event is wrong. 

Completely and utterly wrong. 

I have absolutely no idea on what part of the distribution will be taxable. Particularly given some part of the balance (the contributions made before you were a US person). 

I would definitely get tax advice on that part. But the urgency of that will only come as you reach retirement age, or want to rollover into another fund.

Based on the balances you quoted, I will assume that you are close to my age... and therefore you have time to do some tax planning, and perhaps wait to see if regulations are indeed forthcoming.


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## iota2014

Moulard said:


> I don't think that Super can be considered social security. The totalisation agreement specifically excludes superannuation and there are private rulings on pensions that say that only government pensions like the Australian old age pension are in fact covered. Super can only really be classified as a private pension.


As I suggested, it really depends on the OP's priorities. Superannuation Guarantee contributions clearly *are* considered the equivalent of US social security, as per the totalisation agreement. If I were in the OP's shoes, I would consider that that provides a very defensible justification for a AUS/US dual to assume that the (currently inactive) fund should be treated as social security, hence not reportable on FBAR or FATCA - *IF* said dual feels comfortable with the reasoning.



> It will boil down to a question of the level of compliance that SBR wants to maintain.


Exactly.



> Unfortunately the decision may have significant implications years down the track.


Inevitably, unless by a stroke of luck the exit tax legislation gets modified or repealed.


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## iota2014

Shellberight said:


> Given this thread has seen some views, I can only imagine there are other dual Australian citizens living in the USA in the same boat with under-reported superannuation accounts.


Indeed. And perhaps some living in Australia also. Maybe worth contacting your former employer's payroll department or pension department? Not their responsibility of course but if it's a large institution they'll probably have dealt with USC employees and may be able to comment on the SG = SSA question


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## Moulard

So why do I disagree with Iota and believe that Superannuation /= Social Security?

1) The totalisation agreement does not treat them the same. 

Paragraph 1(b) of Article 1 reads

_"benefit" means, in relation to a Party, a benefit, pension or allowance for which provision is made in the laws of that Party, and includes any additional amount, increase or supplement for which a beneficiary is qualified but, for Australia, *does not include any benefit, payment or entitlement under the law concerning the superannuation guarantee*;_

and the annotation reads...

_"Benefit" refers to old-age, survivors, and disability benefits provided under the Social Security laws of either country, *but does not include benefits under Australia's Superannuation Guarantee (SG) progra*m. The SG program, which requires Australian employers to contribute to private retirement plans for their employees at specified minimum levels or else pay a charge to the Government, *is not included in the benefit provisions of the Agreement *(see comments on Articles 2.1(b) and 8). With respect to the United States, the term also includes the lump-sum death payment under section 202(i) of the Social Security Act, but excludes special age-72 payments provided for certain uninsured persons under section 228 of the Social Security Act._

My emphasis

While Superannuation is referred to in Article 2 Paragraph 1(b)(ii), again the annotations to the agreement make it clear that because Superannuation does not come out of general revenue, and is vested immediately (well actually its only required to be vested quarterly, but lets not quibble) then it isn't a social security payment.


_In accordance with Article 1.1(e), the provisions of Part II of the Agreement, which eliminate dual Social Security coverage and taxation, do not apply to the Australian benefit programs listed in Article 2.1(b)(i) since these benefits are financed entirely from general revenues and not from earmarked payroll taxes. Instead, Part II applies to the Superannuation Guarantee, which is the Government-regulated program requiring employers either to pay contributions to employee retirement plans at specified minimum rates or pay a special SG charge. As a result, when a worker is subject to U.S. laws and exempt from Australian laws in accordance with Part II, the *worker's employer will be exempt from the SG requirements*.

The benefit provisions in Part III of the Agreement establish rules for determining eligibility for the Australian Social Security benefits listed in Article 2.1(b)(i) in the case of people who have divided their careers between Australia and the United States. Since the SG program requires that Superannuation benefits be immediately vested, the provisions of Part III do not affect SG benefits. _

2) Private Letter Ruling 201538006 

This ruling is the only one out there that I am aware of that specifically looks at the nature of Superannuation.

Now, I cannot say for certain, that this is Australian Superannuation, but as far as I am aware there are only two countries in the world that have schemes by that name. Australia and New Zealand. New Zealand Superannuation is a sovereign wealth fund so the facts as outlined in the ruling seem to better align with Australia than New Zealand.

From the conclusions...

_Based solely on facts submitted and representations made, we conclude that X is classified as a trust for federal income tax purposes under § 301.7701-4(a)._

Unfortunately the ruling takes basically a _No Comment _position on the tax implications.


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## iota2014

> So why do I disagree with Iota and believe that Superannuation /= Social Security?


Correction: I wasn't talking about whether Australian-style Superannuation = US-style Social Security. That's not a useful question, IMO. Instead, I was suggesting to the OP that if an Australian assumed that Superannuation was a social security style programme which didn't require an FBAR, that would be a reasonable assumption and unlikely to cause any serious problems. 

Until the IRS issues guidance on the treatment of Superannuation, it appears to me it's a bit pointless scratching one's head over what is The Right Answer. When they eventually make up their minds, that will be The Right Answer - whether it makes any sense or not. In the meanwhile, it's up to individual tax filers to figure out how to deal with it. Let's hope the OP arrives at a solution that works for him/her.


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## Moulard

Sorry, I was under the mistaken impression you were suggesting that the distribution on reaching the preservation age was social security.

On the FBAR reporting side, there is wiggle room ....

In general... If a plan is just a promise to pay, or the retirement assets are held in an account to fund a future annuity where the taxpayer does not have legal ownership of any portion of the account then it is pretty clear that there is no FBAR filing requirement. 

Setting aside those rogue employers who do not actually pay the contributions they are required to, and the fact that others only pay quarterly, once the money lands in the fund it has vested. It is no longer a promise to pay... it has been paid. So there is little room to move there.

But.....

The point on ownership is the interesting one...who is the legal owner of the amount in the trust? That very well depend on the trust deed itself.. 

For example, the trust deed to my fund says that in the event of my death, my nominated beneficiary is non-binding on the trustee. How could the IRS argue I own an asset that may not form part of my estate on my death if the trustees chose to ignore my wishes?

Another interesting aside on the FBAR is around reporting the maximum value. While Form 8938 has you report the value on the 31st of December, the FBAR is the max value at any point during the year.

According to the instructions, Periodic account statements may be relied on to determine the maximum value of the account, provided that the statements fairly reflect the maximum account value during the calendar year.

In light of the fact that most funds only provide 6 monthly statements, it would be pretty easy to argue that it is not a accurate reflection of the maximum value particularly given the daily fluctuations of stocks, bonds, property etc that the funds invest in ... In which case the option is always there to report the account, but check the box that indicates that the value of the account cannot be determined.

Personally I like the idea of seeking out a fund that only reports once a year and clearly states in its deed that the trustee has ultimate choice in who is the beneficiary. No idea if one exists, or would even comply with the Superannuation Guarantee (Administration) Act 1992 but its a nice idea.


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## iota2014

Moulard said:


> Sorry, I was under the mistaken impression you were suggesting that the distribution on reaching the preservation age was social security.


No. For a naturalized US-resident USC who has a pension plan in his/her other country and is considering returning to live and work in that country, the first question is whether there's any need to report the pension at all. As I've said, it really just depends what course of action the person feels comfortable with.



> On the FBAR reporting side, there is wiggle room ....
> 
> In general... If a plan is just a promise to pay, or the retirement assets are held in an account to fund a future annuity where the taxpayer does not have legal ownership of any portion of the account then it is pretty clear that there is no FBAR filing requirement.
> 
> Setting aside those rogue employers who do not actually pay the contributions they are required to, and the fact that others only pay quarterly, once the money lands in the fund it has vested. It is no longer a promise to pay... it has been paid. So there is little room to move there.


IMO, it's extremely unlikely the IRS would bother pursuing a non-US-resident USC for US tax on non-US-source pensions, unless there was evidence of treaty-shopping and "double non-taxation" as they like to call it.


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