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 explain your rights and responsibilities regarding superannuation and US tax returns.

Superannuation 101

Generally, Australian superannuation funds are run as trusts. Every employee over 18 is legally required to contribute to their superannuation fund, unless you are exempt, due to a certificate of coverage. 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 on reporting your Australian superannuation on your US tax return are not 100% clear. Most often, though, Australian superannuation falls under the categories of employee benefits trust or grantor trust.

Difference between grantor and 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 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 grantor trust requires superannuation ownership and income be reported on Forms 3520 and 3520A.

Superannuation and FBAR considerations

FBAR regulations are not clear 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. Although, if you have a foreign grantor trust, 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

Do you need help filing expat taxes?

If you need help lodging your US tax return, call or email the talented 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.