The delay that could cost you thousands
Sun Herld, 10 December 2006
By Barbara Cleveland
In the excitement of a move to a new country don't forget all the funds you left behind, writes Debra Cleveland.
SETTLING in to the country is a top priority for immigrants and Australians returning home after a stint working abroad.
The demands of an international move can mean that the repatriation of finance - such as superannuation and the proceeds of investments abroad - is often put off, which could mean the loss of thousands of dollars.
If you fall into this category and have more than the equivalent of $450,000 you want to transfer to your Australian super fund, you will need to act or face large tax penalties.
Changes to Australian super rules mean there is going to be a cap on "undeducted" (after-tax) super contributions. From July 1 you will only be able to put in $150,000 a year or $450,000 over three years - anything more than that will be hit with tax at the highest marginal rate plus Medicare (46.5 per cent).
In the meantime, the temporary limit is $1 million. "[Overseas] transfers are being treated as part of this cap and clearly when converting [foreign currency] to Australian dollars the bigger the dollar limit the better," says Phil La Greca, technical services director at portfolio administrator Multiport.
If you are transferring from an employer fund overseas, moving in "dribs and drabs" probably won't be possible so you need to act in order to meet the July deadline.
David Ford, managing director of Pension Transfers Direct, which advises on moving pensions from the UK, says: "We've never been busier - [the new rules] are having a very real impact. Transfers take time so it's best to start the process as soon as possible."
KEEP AHEAD ON FOREIGN EXCHANGE
The other factor to consider when moving cash between countries is the fluctuation in exchange rates.
Spencer Wilcox, director of foreign exchange risk management company HiFX, says millions of dollars a year are potentially wasted due to poor foreign exchange rates and associated bank charges.
There are tax implications on the sale of investments or assets overseas. Les Szekely, senior tax partner at Horwath Sydney, says: "When you're selling foreign real estate or assets, as an Australian individual you're up for tax on the profit of the sale as measured in Australian dollars."
REMEMBER SIX-MONTH WINDOW
If you transfer super assets within six months of becoming an Australian tax resident there are generally no Australian taxes, says financial services group ING. Miss the deadline, though, and tax is payable on any growth in your offshore super assets which occurred after you took up residency here.
The good news is that since 1993 it is possible to elect for your Australian super fund to pay the tax - at 15 per cent, rather than the marginal tax rate.
Other changes concern transfers from the UK. Since April, says La Greca, UK law has imposed tax penalties unless Australian super funds become qualifying recognised overseas pension schemes (QROPS). The tax penalty can be as high as 55 per cent, says George Avramides, technical manager at ING technical services.
Advisers are divided as to whether this has made it more difficult or easier to move super from the UK. But the general consensus is that at least it is a more streamlined approach.
Actuary and financial planner Graham Horrocks says there are about 30 public offer super funds with QROPS status. There are self-managed super funds that comply, such as that offered by Multiport and Vantage Financial, a specialist migration financial consultancy.
CHECK UK PENSION WINDFALL
Whether you are Australian or from the UK, if you have worked in the UK and made compulsory contributions to its National Insurance scheme for 11 years if you're male and 10 years if you're female, you will probably be able to receive part of a British pension on retirement.
Sound too good to be true? It's not, says Jim Tilley, honorary chairman of the not-for-profit organisation British Pensions in Australia (BPiA). A part pension is worth about £1095 ($2735) a year after age 65 for men and 60 for women. Even if your UK work stint was less than the qualifying period, if you are still in the workforce it is possible to benefit from the UK pension.
For those who have worked in the UK and made National Insurance contributions for three years, you can make voluntary contributions of £110 ($275) a year until you reach the 10- or 11-year thresholds. Visit BPiA's website ( www.bpia.youle.info [http://www.bpia.youle.info]) for details.
WHERE TO GET ADVICE
The following companies are among specialists which will help with transfers to Australian super funds:
- Pension Transfers Direct ( www.pentran.com.au [http://www.pentran.com.au]) is part of Genesys Wealth Advisers and charges $330 per client for a "feasibility" report on whether it's worth moving your UK super to Australia. It then charges between 2 per cent to 4 per cent for the transfer of funds as well as providing an investment strategy. All charges are inclusive of GST.
- Global Pension Transfers ( www.globalpensions.com.au [http://www.globalpensions.com.au]), also part of Genesys, produces an initial report once it has made contact with clients' UK pension schemes and made an assessment. There is no charge for this, however, as it's included in the transfer charge of up to 2.75 per cent (including GST). For transfer and advice, the charges are between 3.3 per cent and 5.5 per cent.
- Global Destiny ( www.globaldestiny.com.au [http://www.globaldestiny.com.au]), part of FYG Planners, charges up to 3.5 per cent for transfers.
For Jonathan, it's now about state of the estate
THAT many UK pension funds have been slow growers over the past six years is a mixed blessing for Jonathan Stern. Like all migrants, if he'd moved his super across in the first six months it would have been tax-free in this country.
Moving it here after that time means he is liable for tax on any growth in his UK pension funds since his arrival in 2000. But because there has been minimal growth, Australian tax is not a key stumbling block. Instead, Stern - business unit executive for Lotus Software in Australia and New Zealand, a division of IBM Software - is more concerned with estate planning implications.
He feels his wife Elaine and children Nicole, 11, and Daniel, 7, would have more immediate access to his super in Australia if he died either before or after retirement age than if he left it in the UK.
Stern has taken advice from transfer specialist Pension Transfers Direct to compare the long-term options of leaving his funds in the UK versus bringing them to Australia.
He is likely to opt for the latter but because his employer plan here is not a qualifying recognised overseas pension scheme (QROPS) he is being advised to move it into a qualifying super wrap. Having been a non-UK tax resident for more than five years, future portability is not an issue.