superannuation subject to tax in my US tax return

Is my superannuation subject to tax in my US tax return?

Superannuation requirements around tax time can be confusing at the best of times. However, if you’re an Aussie expat living in the US, superannuation rules are even more complex. To clear some of the confusion, this blog will help explain your responsibilities regarding superannuation and US tax returns.

Superannuation 101

Australian superannuation funds are actually trusts. If you are employed in Australia, typically your employer is required to make compulsory contributions into your superannuation fund. Currently, the superannuation contribution rate is 9.5% (which is expected to increase to 10% by 2021).

Superannuation on your US expat tax return

Unfortunately, guidelines about your obligations to report your Australian superannuation on your US tax return are not 100% clear. Most often, though, your Australian superannuation fund will be classed for US tax purpsoes as either and employee benefits trust or a foreign grantor trust, each of which is taxed differently in your US tax return.

Difference between a foreign grantor trust and an employee benefits trust

If it’s considered an employee benefits trust, your superannuation income must be reported on Form 1040 and ownership must be reported on Form 8938. Whether you are taxed on contributions or growth depends on whether you’re considered a “highly-compensated employee” (anyone who earns over $120,000 or owns more than 5% of a business).

What differentiates a foreign grantor trust from an employee benefits trust is control. Control is defined as the ability to choose where your superannuation is invested. Any fund in which you have this kind of control (such as a Self-Managed Superannuation Fund) is considered a foreign grantor trust.

A foreign grantor trust requires that your ownership and income of your superannuation fund be reported on Forms 3520 and 3520A.

Superannuation and FBAR considerations

FBAR regulations are not clear either regarding the reporting of a foreign employee benefits trust. However, there’s an exemption if you own less than 50% of the assets within the trust. Having said that, if you have a foreign grantor trust, then your superannuation must be reported on the FBAR.

Overview of your superannuation reporting requirements

  • You must report your superannuation contributions as income on your tax return
  • Remember to report your superannuation on Forms 8938 and 8938A
  • Report your superannuation income on the FBAR
  • If your superannuation fund is a foreign grantor trust, remember to report the ownership and income of your superfund on Forms 3520 and 3520A

Do you need help filing you Australian tax return?

If you need help lodging your US tax return, contact our team at Expat Tax Services. Remember, we are your first choice for Australian expatriate tax returns and advice.

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Shane Macfarlane

CEO & Founder at Expat Tax Services
Shane's an Australian Chartered Accountant and Australian expat tax specialist who's also an expat himself (based in Asia). Shane's passionate about tax and legitimate tax minimisation, tax-planning and structuring, particularly as it relates to Australian expats who are often subject to high rates of tax back home in Australia.
Shane Macfarlane
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