Does Foreign Financial Asset include "Australian Superannuation"? I cannot take the money out from Australian superannuation. Should I report FBAR & FinCen every year?

[Castro---Co---LLC]

According to an article published in the peer-reviewed Nevada Law Journal, Australian Superannuation is really just privatized social security. https://www.nevadalawjournalforum.com/home/2018/2/6

If that's the case, then, as the article explains, it is not reportable on FinCEN Form 114 (Foreign Bank Account Report) or IRS Form 8938. Nevertheless, you never get into trouble for over-reporting; it's only under-reporting that gets you into trouble. If still in doubt, just report it. But definitely don't pay tax on it.

[KarenJ]

Yes, and should you have questions about what should be reported, err on the side of over-reporting.  Failure to disclose and report these foreign retirement plans can lead to problems with the US Treasury Department and IRS.

Even though you cannot take money out of the Austalian superannuation, you need to report FBAR and FinCEN every year when the balances equal or are greater than the minimum requirements.

For additional information please see the following link:

https://www.irs.gov/businesses/comparison-of-form-8938-and-fbar-requirements

[jessitbtx]

Thanks for the information. The link to the Nevada Law journal in your post doesn't work anymore; however, I found this link which appears to be the same one written by John A. Castro 

https://scholars.law.unlv.edu/cgi/viewcontent.cgi?article=1010&context=nljforum

It's a great read! 

Could you please confirm my understanding of the Tax filing requirements relating to Australian Superannuation below? 

From everything I've read this whole evening, this is my understanding:

1.  Australian Superannuation Income (Gains/Losses/Distributions) is considered a foreign social security, and therefore is not taxable in the US as provided by the US-Australia Income Tax Treaty Article 18 Paragraph 2 - Source: https://www.irs.gov/pub/irs-trty/aus.pdf

2. Therefore to make this election of exempting Superannuation as income for our US tax purposes, we are normally required to file Form 8833 "Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b)". However, pertaining to US Code 301.6114-1(c)(1)(iv), the IRS website also says: 

"You do not have to file Form 8833 for any of the following situations:... 2. You claim a treaty exemption that reduces or modifies the taxation of income from dependent personal services, pensions, annuities, social security and other public pensions, or income of artists, athletes, students, trainees, or teachers." -Source:  https://www.irs.gov/individuals/international-taxpayers/claiming-tax-treaty-benefits

So in Conclusion - relating to his/her Australian Superannuation funds, the US Taxpayer therefore:

- Does Not need to report Australian Superannuation income

- Does Not need to file Form 8833 to claim treaty exemption

- But DOES need to file Forms 8938 and FinCEN to disclose the Foreign Assets Dollar amounts of the Superannuation (recommended to do so for cautionary reasons)

Is my understanding correct? 

(I'm asking because since Turbotax does not support Form 8833, I don't want to print out an entire paper-based tax return just to include the Form 8833, especially when the IRS page seems to say I don't even need to file Form 8833 for Australian Superannuation.  Alternatively,  if you say that I should still file Form 8833 to be safe, can I just mail in the paper Form 8833 by itself along with my FinCEN and request that it be "attached" to my main tax return which I will file electronically with Turbotax? I'm trying to avoid unnecessary printing of paper.)

So any clarification would be great. Thank you so much!

[remsta]

Hi there,

I would love to know what you ended up doing?

Thanks,

[JNaab]

Yes, it would be really great to know what you did since the Australian government allowed up to a $20K early distribution on Superannuation in 2020 as part of its COVID Relief package.

[jessitbtx]

Hi JNaab and Remsta,

There unfortunately wasn't any clear information on this topic, so I asked an Australian lawyer who is familiar with US-Australian tax laws, and this is what he said: 

On this matter of Australian Superannuation, there is an important distinction to make on what is considered "Income": 

1. The gains/dividends/investment earnings that stays within the Superannuation fund, which you have no access to until you reach retirement age, is not immediately taxable, but can be depending on the circumstances in which they are drawn in the future.  

2. Which brings to - the distribution that you do take from the Superannuation - e.g. due to the recent special COVID relief provisions - gets a bit more tricky, because it will depend on what exactly are you withdrawing: are you withdrawing the contributions (and their earnings) from contributions you made while you were an Australian resident for tax purposes, or are you withdrawing contributions and earnings from contributions you made while you are a U.S. resident for tax purposes? These factors affected how your Superannuation gets treated for US Tax purposes, and whether or not you owe U.S. Taxes on the distributions you took. 

So the Australian Tax Lawyer advised me to see a CPA, and not just any CPA, but need to find a CPA that knows about the US-Australian international tax treaty thing. I haven't yet found one, so I haven't made any drawings on my super, but I have continued to report it on FBAR and FinCEN forms annually. 

[JNaab]

Thank you very much for your prompt response! Greatly appreciated. Hopefully the IRS gives more clear instruction on how it will handle foreign retirement accounts in the not too distant future.

[Denkat2019]

Hi @jessitbtx,

Your post has been the most helpful thing I have read so far to help me deal with Aussie taxes since I arrived in the US this year - thanks so much!

I have a couple more questions for you on Superannuation and investments.  I was so glad to read from your post that an 8833 is not required, have you had any questions or problems from the IRS?  I plan to list it in the FATCA 8938 and the FBAR but not include it in any taxable income.

I have a couple of small investments (stocks) that are below the FATCA requirement but I have not sold any investments since I have been a US resident.  Do I need to declare the capital gains and if so on what form do I include this? 

If you find a good Aussie/USA CPA please post and let us know - I can't find one that does not only deal with Aussie business taxes.

Thanks so so much!!!

[jessitbtx]

Hi Denkat2019 - thank you, you are very kind! 🙂 

Here are responses to your questions (to the best of my knowledge). I'm not a tax specialist in any way, just someone who has (tried) to do lots of reading on the IRS website and other websites (whatever I can find!). So my answers come from the readings I've done. I hope below is useful, and if I've got any info incorrectly, please do let me know! 

"...have you had any questions or problems from the IRS? I plan to list it in the FATCA 8938 and the FBAR but not include it in any taxable income."

I have not had any issues. I've continued to file the 8938 and FBAR for the Super every year. I have not made any deposit or withdrawals either since I left Aus. 

"I have a couple of small investments (stocks) that are below the FATCA requirement but I have not sold any investments since I have been a US resident. Do I need to declare the capital gains and if so on what form do I include this?"

Are you referring to stocks in a normal brokerage account or in a self-managed super? If it is a self-managed  super, from what I've read, the super account *might* be seen by the IRS as a "Foreign Grantor Trust" which has additional reporting requirements. If you are referring to normal brokerage account, then yes you need to report the realized capital gains or losses (when you sell the stock).  See https://www.irs.gov/taxtopics/tc409

These are commonly reported in Schedule D and Form 8949. The Turbotax software is good at making it easy to fill out the correct forms for capital gains/losses.

"If you find a good Aussie/USA CPA please post and let us know - I can't find one that does not only deal with Aussie business taxes."

I'm still looking for one. However, I found this website that seems promising: https://efprgroup.com/lp2/australian-us-tax-services/

I might contact them in the near future to get hold of a CPA. 

[remsta]

@Denkat2019 Seth Hertz from www.expatustax.com is awesome. 

However, I used TurboTax live last year to file my US taxes with all my shares, super and Aussie pieces and the people on Live were able to help me with both the Aussie and US part, it was great!

[kkishore1]

Based on all the study that I have done on various websites including IRS website, Superannuation Account that we have in Australia does not need to be reported on either of the forms, neither on FBAR (FinCEN 114) nor on  Form 8938.  Also, as per the website of Castro & Co, Distribution from Superannuation accounts are not taxable in the US as long as fill out the form 8833. Am I not correct? Please advise. Many Thanks  

I am copy/pasting the snippet from IRS Website regarding FBAR. Please pay attention to bullet #5 and 6 (underlined by me):

But, you don’t need to report foreign financial accounts that are:

• Correspondent/Nostro accounts,
• Owned by a governmental entity,
• Owned by an international financial institution,
• Maintained on a United States military banking facility, 
• Held in an individual retirement account (IRA) you own or are beneficiary of,
• Held in a retirement plan of which you’re a participant or beneficiary, or
• Part of a trust of which you’re a beneficiary, if a U.S. person (trust, trustee of the trust or agent of the trust) files an FBAR reporting these accounts.

Below is also a snippet from IRS Website related to form 8938. Please pay attention to the very last paragraph titled 'Foreign Social Security' underlined by me:

Assets Not Required To Be Reported

You are not required to report the following assets.

Certain Financial Accounts

The following financial accounts and the assets held in such accounts are not specified foreign financial assets and do not have to be reported on Form 8938.

1. A financial account that is maintained by a U.S. payer, such as a domestic financial institution. In general, a U.S. payer also includes a domestic branch of a foreign bank or foreign insurance company and a foreign branch or foreign subsidiary of a U.S. financial institution. Examples of financial accounts maintained by U.S. financial institutions include:

   • U.S. mutual funds accounts,

   • IRAs (traditional or Roth),

   • Section 401(k) retirement accounts,

   • Qualified U.S. retirement plans, and

   • Brokerage accounts maintained by U.S. financial institutions.

2. A financial account that is maintained by a dealer or trader in securities or commodities if all of the holdings in the account are subject to the mark-to-market accounting rules for dealers in securities or an election under section 475(e) or (f) is made for all of the holdings in the account.

Certain Financial Assets

You do not have to report any asset that is not held in a financial account if the asset is subject to the mark-to-market accounting rules for dealers in securities or commodities or an election under section 475(e) or (f) is made for the asset.

Foreign Social Security

An interest in a social security, social insurance, or other similar program of a foreign government is not a specified foreign financial asset.