SMSF trustees wanting to transfer retirement savings held in overseas pension schemes need to be aware these types of transactions count towards their contributions cap limits, a superannuation technical specialist has warned.
Legal changes now allow trustees to bring superannuation balances accumulated offshore into their SMSFs, however, there was a misconception as to how those transactions were categorised, Cavendish Superannuation head of education Tim Miller said.
“Foreign transfers are not rollovers. They are contributions, so they are included in that fund capped contribution limit,” Miller said.
“Importantly, it’s the entire amount of that foreign transfer that gets captured under the fund capped contributions limit, so if we’ve got someone under 65 years of age, they are theoretically restricted now to receiving a foreign transfer of $540,000.”
He said the standard procedure for executing that type of strategy would be for the individual to transfer their retirement savings into another vehicle, such as from a large United Kingdom pension fund to a self-invested personal pension, and then relocate that money into their domestic SMSF over several years.
However, he pointed out there was another course of action open to trustees to help them achieve a better outcome in those circumstances.
“But we can also apply to the tax office for an exemption, or more importantly a modification, of the fund cap contribution rules,” he said.
“What we know about foreign transfers is that the growth portion, if we transfer the entire amount from our overseas fund, can be taxed as assessable income in a self-managed fund so [we’ll] pay 15 per cent tax.
“The portion prior to our Australian residency is going to be the non-concessional [component].
“So as long as that non-concessional portion is below our bring-forward limit, we can apply for a modification and get the larger transfer into our self-managed super fund and it’s just a matter of applying to the ATO (Australian Taxation Office).”
He said it was a course of action that to date had not been widely used.
“As long as you can get your calculation in order, I think it’s a nice way to look at potentially bringing those transfers in from overseas,” he said.