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(July-2002) Trustee update
From July 1, 2002, foreigners who entered Australia temporarily on particular classes of visas and who worked during their stay, are entitled to access their superannuation benefits when they depart permanently from Australia. However, a special one-off tax applies to such ‘departing Australia superannuation payments’ — which super funds are required to withhold and remit to the Tax Office.
While the Government claimed the measure would reduce the ongoing costs for super funds in maintaining accounts for temporary resident members, it has also created an additional administrative burden, which trustees and administrators need to become familiar with.
General nature of new measure
The ‘departing Australia superannuation payment’ is defined as a payment that would normally be considered an eligible termination payment (ETP), if it had not fallen within this new category, and is paid to a person who has permanently departed Australia in accordance with the SIS or RSA regulations.
Importantly, a ‘departing Australia superannuation payment’ is excluded from the definition of ETP and is not subject to reasonable benefit limit (RBL) reporting. Nor are such payments included in the assessable income of the recipient.
The class of persons eligible to receive a ‘departing Australia superannuation payment’ prior to reaching preservation age (55 and retired) generally includes temporary residents who do not reserve the option of remaining in Australia and accessing the age pension. As such, it excludes Australian citizens, permanent residents and New Zealand citizens. The regulations provide a list of 110 eligible temporary resident visa classes.
Trustee obligations
The new condition of release is mandatory for all SIS-regulated super funds and RSA providers. However, it is voluntary for unfunded public sector super schemes. There is also a requirement for the balance of the account to be exhausted in a single lump sum.
Where a member makes a written request to a fund for a ‘departing Australia super payment’, trustees need to verify the immigration status of the applicant. For accounts with a balance of $5,000 or more, the trustee of the fund must be satisfied, based on a written statement from the Department of Immigration and Multicultural and Indigenous Affairs (DIMIA), that the member was the holder of an eligible temporary resident visa that has expired or been cancelled. Evidence is also required that the member has permanently departed Australia.
Where the member’s benefit is less than $5,000, simplified verification arrangements apply that require the departing individual to provide both a copy of their expired or cancelled eligible temporary resident visa (or evidence of such a visa) and a copy of their passport showing they have departed Australia.
For written requests received prior to November 1, 2002, a super fund must make the payment within three months. After that time, payments must be made within 28 days.
Significantly, a special withholding tax applies under s 27GA of the 1936 Tax Act to ‘departing Australia superannuation payments’. A super fund making such a payment is required to withhold an amount and give a payment summary to the recipient and the Commissioner within 14 days after the payment (see table).
Trustees should be aware that a $2,200 penalty applies to super funds that fail to meet their obligations to provide payment summaries to recipients when making withholding payments. If a super fund is forced to pay a penalty for its failure to withhold tax, it is entitled to recover the penalty from the individual. However, in practice, recovering a penalty may prove to be extremely difficult given that the individual will be outside Australia.
Summary
Super fund trustees and administrators need to ensure that:
n their systems can deal with requests (within the time limit provided) for the release of benefits for members who permanently depart Australia;
n departing members satisfy the precise requirements for early release of benefits;
n the correct amount of tax is withheld and remitted to the Australian Tax Office;
n payment summaries are issued to the payee and ATO within 14 days.
As a result of the one-off withholding tax, not all people who qualify for a ‘departing Australia super payment’ will want to utilise it. For those approaching preservation age and retirement, delaying the cashing of benefits until that time may be more tax effective.
— Stuart Jones is a tax and superannuation writer at Australian Tax Practice. E-mail: [email protected]
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