Q: My husband and I are getting ready to return home (USA) after living and working in Perth for the past 2 years. We came to WA on a temporary work visa. My husband has a super fund and we were wondering if we can leave the money in his super until he turns 60. My husband was born in September of 1960, which makes age 56 his preservation age, but we hope that delaying withdrawal from the super until age 60 would decrease or eliminate the 35% tax rate. If we leave the money in his super after our visa expires, then the money may be sent to the ATO. Is it safe to leave the money with the ATO for a couple of years? Is there a time limit for claiming the money?
Temporary residents are treated differently under the super rules in terms of accessing super benefits early, although you need to check with the ATO how the rules specifically apply to your circumstances.
If an individual has held a temporary visa under the Migration Act 1958 (except for visas under subclasses 405 and 410), then such an individual is eligible to apply for a ‘Departing Australia Superannuation Payment’ (DASP) when leaving Australia.
In most cases, a superannuation fund must transfer the temporary resident’s super benefits to the ATO if the individual has not claimed the benefits within 6 months of departing Australia, or within 6 months of the expiry or cancellation of the visa, whichever event is later.
A temporary resident doesn’t have to claim his or her super benefits upon leaving the country or, at a later stage. It’s possible to leave the benefits in Australia until retirement, but if the super benefits are transferred to the ATO, the money is not invested on the individual’s behalf. What this means is that the super benefit does not receive investment earnings or pay insurance premiums.
Instead, since 1 July 2013, the super benefit receives a form of ‘interest’. The ‘interest’ will be paid at a rate equivalent to the rate of inflation – Consumer Price Index (CPI) on all superannuation accounts reclaimed from the ATO. I that super account had remained with the super fund, then you could have expected investment earnings (and sometimes investment losses) less fees.
Tax rate on DASPs: In relation to your comment about saving tax by leaving the super benefits in unclaimed super until the age of 60, so you don’t have to pay the 35% withholding tax, my understanding is that the 35% is still payable on the taxable component of the benefit. I believe the payment is still subject to withholding tax, even on or after the age of 60. My understanding is that former temporary residents (now non-residents) receiving money from the ATO (rather than a taxed super fund) are not eligible for tax-free payments from the age of 60, and withholding tax is payable regardless of age, or whether you have retired. In any case, you will need to confirm your individual circumstances, and the withholding tax treatment of unclaimed super benefits for non-residents, with the ATO.
Background: The withholding tax rates for DASPs are:
- 0% for the tax-free component
- 35% for a taxed element of a taxable component
- 45% for an untaxed element of a taxable component (certain unfunded public sector funds, although unfunded public sector super funds are not required to pay out super as a DASP).
For more information about temporary residents leaving Australia and accessing super benefits, see the special section on the ATO website titled Super information for temporary residents departing Australia.
Warning: If an individual is on a working holiday visa, the tax rate on Departing Australian Tax Payments is a whopping 65% (for more information, see SuperGuide article Superannuation tax: ‘Working holiday makers’ hit with 65% tax (since July 2017) ).
Important: Australian citizens, Australian permanent residents, New Zealand citizens, retirement visa holders and investor retirement visa holders cannot access super benefits via a DASP. The rationale for denying these categories of fund members early access to super when they leave Australia, is that they maintain the right to retire in Australia, and can claim the Age Pension. New Zealand citizens can now transfer Australian super benefits to New Zealand retirement schemes, known as KiwiSavers. For more information on transferring retirement savings between Australia and New Zealand, see SuperGuide article KiwiSaver: Only 3 super funds accept super transfers from NZ to Australia.
Note that the definition of a resident for tax purposes is different to the definition used by the Department of Immigration and Border Protection.