# Australian Public Sector Superannuation - declare funded components on form 8938?



## Pareto8020

Hello,
I'm an Australian citizen planning to move to the US on a Greencard. As I work for the Australian Government, I am with the Public Sector Superannuation (PSS) scheme. This is a defined benefit scheme that consists of a number of components:
1. Member component - the bit I contribute fortnightly plus growth (funded)
2. Productivity component - the bit my employer contributes fortnightly plus growth (funded)
3. Transfer component - an amount transferred in from another superannuation scheme back in the day, plus growth - for me this is small but exists (funded)
4. Employer component - this is an UNFUNDED component that is basically a promise (or IOU) to pay when I get my payout/pension. As a defined benefit scheme, my payout/pension is based on an algorithm, and this bit is whatever extra money is required to provide the algorithm-defined amount.

More info: https://www.finance.gov.au/superannuation/arrangements-australian-government-employees/pss/

My question is - when filling in IRS Form 8938 "Statement of Specified Foreign Financial Assets" should I only declare the FUNDED components? For me, the unfunded Employer component is by far the largest component - about 60% of my payout figure.

Also, I have reviewed this excellent discussion on this forum on the need to report Australian public sector superannuation schemes on Form 8938, and understand that there are different viewpoints on whether it is best to do this or not: https://www.expatforum.com/expats/expat-tax/1209729-australian-us-citizen-superannuation.html

My question is based on the assumption that I need to report my PSS super on Form 8938 - also as recommended here: https://www.expatforum.com/expats/e...iciary-australian-family-trust-no-income.html

Thank you extremely knowledgeable people.


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## Moulard

The short(ish) version...

Its likely to depend on what amounts are available on any statement that you get. If you can reasonably calculate the value of all components then in theory you should report on both the funded and non-funded portions.

If you cannot reasonably calculate the fair market value, then the instructions state "use a value of zero" .

Depending on how transparent you want to be, you may also want to read the fine print on your statement. It might have a little asterisk somewhere that states that the values are "based on notional amounts" or such, which could give you wiggle room to say that you do not know the true amount.

If you plan to report it and a "real" value then report the balance on a statement. If its on the statement report it, if not, don't..

The longer version ...

... would require an analysis of the doctrine of constructive receipt and concepts of vesting. Which would probably take me all night to dig out the relevant regulations, and then ponder on undefined concepts such as "substantial limitations or restrictions." And then even longer to do the same on "substantial risk of forfeiture".

.. and would probably end up with the exact same but perhaps slightly more nuanced position...

For what its worth, I was one half of the earlier discussion on the PSS. 

One thing I think both Iota and I agreed on is that how you report is likely tied to the risk you are exposed to. If you are residing in the US then the risk stakes (while still small) are significantly higher. Once resident in the US, you and your assets would be within arms reach of the US Treasury.

And I will admit, in that discussion, I got one thing wrong - the tax treatment government remuneration. 

I know I admitted as much in a PM with Iota, I cannot recall if posted same in the thread.

Long and the short, I read the treaty before posting, but did not carefully re-read the technical memorandum. The savings clause does not protect government remuneration when one is a citizen or resident of the other country.

Of course, this only matters once you hit your preservation age and there is a distribution.


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## underation

According to this article, it seems the IRS doesn’t object to Australian superannuation being treated as social security:

https://www.smsfadviser.com/u-s-tax-treatment-of-australian-superannuation


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## underation

underation said:


> According to this article, it seems the IRS doesn’t object to Australian superannuation being treated as social security:
> 
> https://www.smsfadviser.com/u-s-tax-treatment-of-australian-superannuation


And actually, it seems from the recent ruling linked to at https://www.expatforum.com/expats/expat-tax/1482510-u-s-citizens-france-win-7-year-fight-irs.html that it’s not necessarily up to the IRS to rule on the questions involving the totalisation treaty.

The question of whether superannuation is or is not social security is surely a question which ought to be resolved between the Competent Authorities, under the Mutual Agreement Procedures, without cost to the taxpayer.

Worth having a look on the Australian tax agency website, I would suggest, to see what the procedure is for raising an issue under the MAP Article - get a firm answer while still safely in Australia.


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## underation

Also:



> The Australian government is aware that the US's tax treatment of Australian super can produce "anomalous outcomes". But Australian super accounts - including those in a self-managed fund - are not reportable to the IRS under the Australian US tax agreement, said an ATO source.


https://www.smh.com.au/money/tax/ta...h-details-of-184-billion-20180221-p4z12g.html

If that’s correct, it shouldn’t be too difficult to get confirmation in writing from the ATO.


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## 255

Pareto8020 -- It is clear from the posts above, from Moulard and underation, that the Australian Public Sector Superannualization doesn't fit cleanly into one of the "boxes" created by U.S. law or implemented by the U.S. IRS. This often happens and the IRS will establish their own interpretation of the law, accept the implementation of a tax attorney that has made their interpretation or often take a courts "interpretation" of the law (even if not codified in U.S. Code.) I am not conversant in the U.S -- Australian Social Security Agreement; Superannuation is listed here: https://www.ssa.gov/international/AustraliaAnnFile/AustraliaAgreeArt 2 1 b.html 
The agreement is nearly two decades old and will probably be revised before you start drawing. Back to your reporting question -- I could go either way. Remember you're asking about forms that provide information only -- there is no tax involved. Personnally, I would lean on the side of providing a little more information than leaving something off that they might be interested. If anything is unusual, I generally include a note (either directly on the form or a separate page explaining what I'm doing and IRC references, if I have them.) As simple as "(Australian Social Security)" would probably suffice. Cheers, 255


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## Moulard

underation said:


> According to this article, it seems the IRS doesn’t object to Australian superannuation being treated as social security:


The crux of his argument has been published here:

John A. Castro, U.S. Tax Treatment of Australian Superannuation, 2 Nev. L.J. Forum 91 (2018).

Basically, he argues that the US is bound by the OECD definition of a pension.

I have not had a chance to delve into the merits of that position.


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## Moulard

underation said:


> ... that it’s not necessarily up to the IRS to rule on the questions involving the totalisation treaty.


No. What must happen is that Treasury must promulgate regulations. These regulations define how the IRS interprets the IRC. 




> The question of whether superannuation is or is not social security is surely a question which ought to be resolved between the Competent Authorities, under the Mutual Agreement Procedures, without cost to the taxpayer.


I hate to break it to you, but treaties are not about protecting the taxpayer. They are about two countries agreeing on how to split tax revenue. The convention defines who gets the share of income tax, the totalisation agreement who gets the share of self employment tax.

From a taxpayer perspective, the only way they can use the MAP procedures if they believe they are being taxed – or will be taxed – not in accordance with a tax treaty.

The triggers for going to the MAP are:


a notice of assessment or amended assessment
a statement of audit position
a private ruling
a certificate of withholding


It is not a mechanism to gain clarity on the treaty interpretation (for the individual taxpayer that is). 

That is done typically through either protocol changes or through a memorandum of understanding. This is a political process.

Unfortunately successive Australian governments has stated that the treatment of Superannuation by the US is a matter for the US government, and has never shown any meaningful interest in pursuing the matter.


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## Moulard

underation said:


> Also:
> 
> If that’s correct, it shouldn’t be too difficult to get confirmation in writing from the ATO.


The tax agreement in question is the FATCA IGA. It is not the convention. Under the IGA, Superfunds are exempt from reporting US account holders to the ATO for transmission of that information to the US.


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## underation

Moulard said:


> I hate to break it to you, but treaties are not about protecting the taxpayer. They are about two countries agreeing on how to split tax revenue. The convention defines who gets the share of income tax, the totalisation agreement who gets the share of self employment tax.


Defines when the residence country will concede taxing rights to the source country. The confusion over the OP’s Superannuation seems to arise from uncertainty as to which article applies (e.g., whether or not Superannuation falls under the article dealing with social security).



> From a taxpayer perspective, the only way they can use the MAP procedures if they believe they are being taxed – or will be taxed – not in accordance with a tax treaty.
> 
> The triggers for going to the MAP are:
> 
> 
> a notice of assessment or amended assessment
> a statement of audit position
> a private ruling
> a certificate of withholding


Presumably, if there’s a problem with the US taxing Australian social security as if it were private investment, there must be assessments? Alternatively, if there _isn’t_ actually a problem with the US taxing Australian social security punitively, MAP doesn’t come into it.



> It is not a mechanism to gain clarity on the treaty interpretation (for the individual taxpayer that is).
> 
> That is done typically through either protocol changes or through a memorandum of understanding. This is a political process.


Yes - but is sometimes the result of a MAP case. But it now seems there may already be clarity about Superannuation as far as the authority with the taxing rights is concerned: i.e. it’s social security and is not reportable to the IRS. If that’s Australia’s position, perhaps the problem is more of a misunderstanding on the part of (some) US taxpayers.




> Unfortunately successive Australian governments has stated that the treatment of Superannuation by the US is a matter for the US government, and has never shown any meaningful interest in pursuing the matter.


That seems fair enough; if (some) US citizens/residents opt to report it as US-taxable, by doing so they’re obviously agreeing to be taxed by the US under US law.


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## underation

Moulard said:


> The tax agreement in question is the FATCA IGA. It is not the convention. Under the IGA, Superfunds are exempt from reporting US account holders to the ATO for transmission of that information to the US.


Because not US-taxable, presumably.


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## Bevdeforges

underation said:


> Because not US-taxable, presumably.


Not necessarily...


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## JustLurking

underation said:


> Originally Posted by *Moulard*
> The tax agreement in question is the FATCA IGA. It is not the convention. Under the IGA, Superfunds are exempt from reporting US account holders to the ATO for transmission of that information to the US.
> 
> 
> 
> Because not US-taxable, presumably.
Click to expand...

The US might or might not regard Australian Superfunds as taxable, but it is questionable to infer that something not transmissible under a FATCA IGA is not US-taxable _under US law_.

The US/UK FATCA IGA exempts UK ISAs, Premium Bonds and so on, yet _US tax law_ (whether or not justifiable or enforceable, and your views on this are well known by now) regards these as definitely US-taxable to US citizens living anywhere on the face of the planet.


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## underation

JustLurking said:


> The US might or might not regard Australian Superfunds as taxable, but it is questionable to infer that something not transmissible under a FATCA IGA is not US-taxable _under US law_.
> 
> The US/UK FATCA IGA exempts UK ISAs, Premium Bonds and so on, yet _US tax law_ (whether or not justifiable or enforceable, and your views on this are well known by now) regards these as definitely US-taxable to US citizens living anywhere on the face of the planet.


Yes - but as the UK has the taxing rights on ISAs and the US doesn’t, the US can’t tax ISAs unless the UK-resident owner files a US tax return, reporting the income to the US and agreeing to pay (additional) US tax. It can’t possibly be used to evade tax in either country. There’s no double taxation, and no double non-taxation. No need for it to be reported under FATCA.

A US government pension, on the other hand, is US-taxable under the treaty even when received by a UK resident, if the recipient is a US citizen and not a UK citizen. It’s not voluntary. The UK allows credit, as agreed by the treaty. No double taxation, and no double non-taxation.

Superannuation received by an Australian resident certainly doesn’t appear to be taxable by the US, given that Australia is both source country and residence country. But if a US citizen in Australia files a US tax return, and reports the Superannuation as US-taxable rather than excluding it as social security, then of course they’ll end up paying US tax, and sadly won’t be able to claim foreign tax credits, since they didn’t have to pay it.

A US resident owner of Australian Superannuation funds, however, is in a different position. 255’s suggestion above seems a good way to handle that particular uncertainty.


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## underation

JustLurking said:


> (whether or not justifiable or enforceable, and your views on this are well known by now)


As to whether it’s justifiable: I think US so-called “citizenship taxation” is a misnomer. The US taxes the worldwide income of residents (subject to treaty agreements), and deems all citizens to be residents. Never having been asked by the US to pay tax except when it was due, I don’t personally have any complaint.

As to whether it’s enforceable: I think this is a rather crucial point, in treaty countries; since if you live in Country A yet pay tax to Country B which you didn’t have to pay, you may not be able to claim foreign tax credits.


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## kaju

With regard to the Original Poster, PSS and CSS pensions are considered as Australian Government service pensions and not Superannuation. 

Such income is only taxable in Australia under the dual taxation agreement.

While you may need to declare any such pensions, anything in these actual funds, and/or any Australian Government service pension paid from them should not be considered as superannuation and is not taxable by the US, although you may need to point out the treaty to them. 

If you withdraw a lump sum etc from the PSS or CSS, then income (interest, etc) generated by those funds that may be fair game for being taxed in the US, even if you invest those funds in a private income stream, subject to the provisions of the treaty.


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## underation

kaju said:


> With regard to the Original Poster, PSS and CSS pensions are considered as Australian Government service pensions and not Superannuation.
> 
> Such income is only taxable in Australia under the dual taxation agreement.
> 
> While you may need to declare any such pensions, anything in these actual funds, and/or any Australian Government service pension paid from them should not be considered as superannuation and is not taxable by the US, although you may need to point out the treaty to them.


As long as the OP doesn’t become a US citizen, presumably?


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## kaju

underation said:


> As long as the OP doesn’t become a US citizen, presumably?


That's what I thought for a long time, but after looking at the agreement, the first requirement to be taxed on Australian Govt Pensions in the US (and/or other countries) is that the work that earned the Australian Government pension must have been done in the new country AND you must be a US Citizen. 

So it seems that adopting the new nationality by itself won't be enough to stop Aussie Govt Pensions being taxed in Australia, and staying not taxable in the US (and other countries).

See Article 19, 1.141, here: INTERNATIONAL TAX AGREEMENTS AMENDMENT BILL (NO. 1) 2002 Explanatory Memorandum 

Pretty sure that this whole regulation relating to Government pensions was written by clever public servants/officials, who knew how to take care of themselves. As it affects both countries equally, I think both lots of official negotiators would have agreed on this clause very quickly! 

Fortunately the Aus govt does allow multiple nationalities (I have 2, kids have 3) but sadly for me Germany doesn't normally, so I'd have to lose the Aus nationality if I wanted to be German anyway. Would save issues with residence permits etc, and as I'm married to a German and speak it ok it would be easy to get. 

Then again, if you didn't tell the Germans, the Aus govt will fast-track "new" Aussie citizenship for former Aus citizens if they had to renounce it to get another! So I could renounce the Australian Citizenship, get the German, then quietly get the Australian one as well. Shhh! Hey, we're on the ball over here!!


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## underation

I like it. 

Thanks for the explanation about government pensions. Makes perfect sense.


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## Moulard

kaju said:


> While you may need to declare any such pensions, anything in these actual funds, and/or any Australian Government service pension paid from them should not be considered as superannuation and is not taxable by the US,
> although you may need to point out the treaty to them.


Its worth noting that CFR § 301.6114-1 (c)(1)(iv) specifically exempts pensions from having to take a Treaty-based return position. This means one does not need to complete From 8833, but you would probably have to add a comment to your return citing the relevant regulation.


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## Moulard

kaju said:


> With regard to the Original Poster, PSS and CSS pensions are considered as Australian Government service pensions and not Superannuation.
> 
> Such income is only taxable in Australia under the dual taxation agreement.


I used to think exactly the same as you did, but it was pointed out that this is a misreading of both Article 19 and Article 1(4), 

The technical explanation of Article 19 states... 



> 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.


But, note that the explanation goes on ...



> 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



Art 1(3) is the standard savings clause that allows both countries to tax its residents and citizens as if the treaty was not in force. Paragraph 4(b) which excludes government remuneration is only a partial protection. It only protects ..



> "individuals who are neither citizens of, nor have immigrant status in, that State"


This basically means that an Australian who is also a US person (citizen or permanent resident) is not protected by the treaty under Article 19.


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## kaju

Moulard said:


> I used to think exactly the same as you did, but it was pointed out that this is a misreading of both Article 19 and Article 1(4),
> 
> The technical explanation of Article 19 states...
> 
> 
> 
> But, note that the explanation goes on ...
> 
> 
> 
> 
> Art 1(3) is the standard savings clause that allows both countries to tax its residents and citizens as if the treaty was not in force. Paragraph 4(b) which excludes government remuneration is only a partial protection. It only protects ..
> 
> 
> 
> This basically means that an Australian who is also a US person (citizen or permanent resident) is not protected by the treaty under Article 19.


 ....

Hmm. I'll have to think about that, but your reasoning does seem sound! 

It's certainly not the case with other double taxation agreements I've seen, where government service pensions are only taxable in the country you're going to if you are both a resident AND a national of, that "new" country.


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## Pareto8020

255 said:


> Back to your reporting question -- I could go either way. Remember you're asking about forms that provide information only -- there is no tax involved. Personnally, I would lean on the side of providing a little more information than leaving something off that they might be interested. If anything is unusual, I generally include a note (either directly on the form or a separate page explaining what I'm doing and IRC references, if I have them.) As simple as "(Australian Social Security)" would probably suffice. Cheers, 255





kaju said:


> With regard to the Original Poster, PSS and CSS pensions are considered as Australian Government service pensions and not Superannuation.
> 
> Such income is only taxable in Australia under the dual taxation agreement.
> 
> While you may need to declare any such pensions, anything in these actual funds, and/or any Australian Government service pension paid from them should not be considered as superannuation and is not taxable by the US, although you may need to point out the treaty to them.


Everyone - THANK YOU for all your advice, you've given me a lot to think about. I'm still a little overwhelmed but for now I think I have an answer to my question and am aware of issues I need to look into further, if and when my situation changes regarding my citizenship and residency. For now, my plan is:
1. Report both funded and unfunded components of my Australian Public Service Superannuation on Form 8938 and FBAR
2. Include a note in brackets of "(Australian Social Security)"
3. When I become a US-resident (get my greencard) I won't pay any US tax as I won't be receiving a pension. I'll also stop contributing to my PSS Super and it becomes a "preserved benefit"
4. If I grow old in the US and eventually receive a PSS pension, I still should not pay US tax if I'm only a greencard holder
5. Before applying for US citizenship, I need to check the latest advice on how it may affect my future PSS pension


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## underation

Moulard said:


> This basically means that an Australian who is also a US person (citizen or permanent resident) is not protected by the treaty under Article 19.


I suggest that thinking about it in terms of “protection” from US taxation may be a bit of a red herring.

Why are government pensions treated differently? Clearly, because a government pension is funded by taxes. If the OP becomes both a citizen and a resident of the US, the pension will still have been funded by the Australian taxpayer, and the tax on payments will go back to the Australian taxpayer.

Would/could Australia (or any other government) agree to forego the revenue merely because the pensioner subsequently moves to the US and becomes a US citizen? Seems unlikely.

The position set out in the interpretation of the protocol (linked to by kaju above) makes sense: it’s where the government pension was earned that determines which government taxes a dual’s pension. (In my (current) opinion.)


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## underation

Pareto8020 said:


> 4. If I grow old in the US and eventually receive a PSS pension, I still should not pay US tax if I'm only a greencard holder
> 5. Before applying for US citizenship, I need to check the latest advice on how it may affect my future PSS pension


Occurs to me - don’t US-resident PRs get taxed exactly the same as US-resident US citizens? Are there exemptions available to a Green Card holder which aren’t available to a citizen?

It might be worth checking this out while you’re still in the planning stage, if you think you might indeed grow old(-ish) in the US. 

Though perhaps it won’t matter much which country taxes your government pension, if the tax rates are similar.


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## Moulard

underation said:


> Why are government pensions treated differently?


Social Security and related public pensions (for example in Oz, the Aged Pension) are treated the same and protected in the model treaty. 

Its the private/personal pensions that are not protected. 

I recall, but cannot find evidence again, that this was at the US insistence. Australia allowed quite generous before tax contributions (salary sacrifice in Aus parlance) and that along with the concessional tax rate meant that the US saw this as a means of tax avoidance.

Recent changes have introduced caps to the amounts that can receive concessional tax treatment and if my recollection of an opinion piece or academic article I read over a decade ago is correct, then it could well be that resistance may have soften.


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## underation

Moulard said:


> Social Security and related public pensions (for example in Oz, the Aged Pension) are treated the same and protected in the model treaty.
> 
> Social Security pensions when paid cross-border are taxed normally in the residence country, in accordance with its purpose; while government pensions are taxed normally in the source country, in accordance with sovereignty. It was the sovereignty issues I was thinking anout - diplomats, etc.
> 
> 
> 
> 
> Its the private/personal pensions that are not protected.
> 
> 
> 
> Yes. Because it’s an avenue of capital investment in which the taxpayer becomes an actor in the flow of capital across borders - with, as you say, the usual opportunities for sheltering money from taxation.
> 
> Interesting.
Click to expand...


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## underation

underation said:


> The position set out in the interpretation of the protocol (linked to by kaju above) makes sense: it’s where the government pension was earned that determines which government taxes a dual’s pension. (In my (current) opinion.)


And elsewhere (https://www.ato.gov.au/law/view/document?DocNum=0000080102&PiT=99991231235958&FullDocument=true), 
the ATO says succinctly:



> Article 19 provides that remuneration (including pensions) paid in respect of labour or personal services performed as an employee of a government (including a State or local government) of one of the countries in the discharge of governmental functions to a citizen of that country will be taxable only in that country.


Very useful plain-English document - also gives a brief general commentary on the saving clause and its exceptions.


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