Superannuation and temporary residents

While legislation dictates the circumstances under which preserved benefits may be released, the conditions of release are also subject to the governing rules of the fund (ie, the rules in the trust deed of the superannuation fund).

Some superannuation funds may not recognise a particular condition of release under their governing rules. Therefore, it is always important to check with the superannuation fund to make sure they recognise the condition of release that the member wants to use.

Temporary residents satisfying a condition of release

Departing temporary residents may be eligible to access their superannuation benefits upon departure from Australia, subject to meeting certain criteria, using a condition of release called ‘former temporary resident’.

For the purpose of the condition of release, an individual is considered a temporary resident if they are the holder of a temporary visa under the Migration Act 1958.

For a temporary resident to access their benefits under the former temporary resident condition of release, the individual must:

n have left Australia;

n not be an Australian citizen, New Zealand citizen or permanent resident; and

n have held a temporary visa that has ceased to be in effect.

Benefits claimed under this condition of release must be cashed as a single lump sum that is at least the amount of the member’s withdrawal benefit in the fund.

Note that additional amounts received by the fund by way of contribution, transfer or rollover after cashing the benefits may also be cashed without requiring an additional application from the member.

Where a temporary resident wishes to gain access to their superannuation benefits under the former temporary resident condition of release, the payment will be treated as a departing Australia superannuation payment (DASP) and will be subject to the relevant withholding tax rates (see following conditions).

Under the system:

n after an individual’s temporary visa (other than a retirement visa holder, subclass 405 or 410) has been cancelled or expired; and

n after they have departed Australia; and

n after at least six months have passed; and

n if they have not claimed their superannuation;

their superannuation will be treated as unclaimed money and will be payable to the Australian Taxation Office (ATO).

After departing Australia, a former temporary resident can claim their superannuation under the former temporary resident condition of release from either of the following:

n the superannuation fund (if the money has not been transferred); or

n the ATO (after the fund has transferred the money).

What evidence is required?

To apply for payment under the ‘former temporary resident’ condition of release, temporary residents must apply to their superannuation fund or the ATO (where their funds have been paid to the ATO under the unclaimed money provisions) for payment and provide proof of eligibility. Generally, the superannuation fund or ATO will be required to make a payment within 28 days of receiving a valid request.

The fund trustee or the ATO will require a written statement from the Department of Immigration stating that the individual was a temporary resident, that their temporary visa has ceased to be in effect and they have departed Australia.

Alternatively, if the member’s benefit in the fund is less than $5,000, they can provide:

n a copy, or other evidence, of a visa showing that the member was a temporary resident but the member’s temporary visa has ceased to be in effect; and

n a copy of the member’s passport showing they have departed Australia.

Limited conditions of release for temporary residents

An implication of recent changes to the treatment of temporary residents’ superannuation is that an individual who has at any stage been a temporary resident (other than a retirement visa holder, subclass 405 or 410) and who is not an Australian citizen, New Zealand citizen or permanent resident, is only able to withdraw their superannuation benefits under limited conditions of release, in particular:

n a condition that the individual satisfied before April 1, 2009;

n death;

n terminal medical condition;

n permanent incapacity;

n temporary incapacity; and

n former temporary resident.

Temporary residents cannot use the ‘retirement’ and ‘reaching age 65’ conditions of release unless they satisfied these conditions before 1 April 2009.

These changes have now removed the opportunity for temporary residents to defer the release of benefits until retirement or reaching age 65 to receive the concessional tax treatment that is available to Australian residents on withdrawing their superannuation benefits.

This strategy gave a significant tax saving to temporary residents who deferred withdrawal of their benefits until later, when the benefits would be subject to the standard superannuation lump sum withdrawal tax rates as opposed to the higher withholding tax rates applied against a DASP.

Departing Australia superannuation payments

Where a payment is made under the former temporary resident condition of release, the benefit is treated as a DASP for tax purposes.

The withholding tax rates that apply to DASPs are shown in the following table. These rates apply to payment applications made on or after 1 April 2009.

Permanently departed Australian residents

There is a misconception that if an Australian citizen permanently departs Australia, they will automatically satisfy a condition of release and be able to access their preserved superannuation benefits.

Although this was the case prior to July 1, 1998, under the current rules, Australian citizens who permanently depart Australia are unable to access their superannuation benefits unless they can satisfy one of the standard conditions of release (eg, retirement, reaching age 65, etc).

In other words, permanent Australian residents are unable to use the former temporary resident condition of release.

Terminating gainful employment — benefits less than $200

An individual may access their preserved and restricted non-preserved benefits from a regulated superannuation fund upon terminating employment with a standard employer-sponsor if the preserved benefits are less than $200 at the time of the termination and the governing rules of the fund allow for this.

A standard employer-sponsor of the fund is an employer who contributes to the fund (or has ceased only temporarily to contribute) wholly or partly pursuant to an arrangement between the employer and the trustee of the fund.

Any benefits released under this condition of release will be received tax-free by the individual. An individual may also access their benefits where the individual was deemed to be a lost member and has subsequently been found, and the amount of the benefit is less than $200.

Benefits under $200 will not be tax-free where the benefits are paid as a DASP. The above withholding tax rates for a DASP will apply.

Ryan Krawitz is a technical services manager at AXA.