I've been living in the USA for six years and have never paid any tax on my superannuation back in Australia - I've always assumed it was a pension fund, and have never had a tax preparer ask me about it ever, but recently I was told that it's counted instead as a trust and I needed to pay taxes on the whole amount or the interest. Does anyone know what the actual situation is with regard to the status of Australian superannuation being counted as foreign income on US taxes?

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Two things you can be certain of, death and taxes, and you definitely want to protect yourself. When it comes to this subject, it is advisable to consult a tax attorney (I am not).

This article may point you in the right direction, written by a US law firm in Washington, DC, Castro & Co, which specializes in international tax law (again, no affiliation, the result of a Google search 'pay US taxes on Australia superannuation').

U.S. Tax Treatment of Australian Superannuation Funds

How Are Australian Superannuation Funds Treated in the U.S.?

Under domestic U.S. tax law, Australian Superannuation Funds can be treated as either a foreign grantor trust or an annuity depending on whether the assets within the fund are preserved or non-preserved. There may also be hybrid treatment where a portion of the Superannuation Fund is treated as an annuity and the other portion is treated as a foreign grantor trust. Generally, gains within a foreign grantor trust are taxable in the U.S., which can result in a tremendous tax burden, especially if an Australian national does a rollover from one Superannuation fund to another while a U.S. tax resident.

Under the U.S.-Australia Income Tax Treaty, however, there is an opportunity to lawfully avoid U.S. taxation on Australian Superannuation Funds. By taking this legal position, Australia would have exclusive taxing rights over Australian Superannuation Funds, which effectively allows Australian nationals residing in the U.S. to lawfully exclude any gains within or even future distributions from their Australian Superannuation Fund from their U.S. federal income tax returns.

This not only makes the U.S. a more attractive retirement jurisdiction for Australian nationals, it also allows Australian nationals to work in the United States without concern that their tax-preferred Superannuation Funds will be unfairly taxed by the United States. As explained above, however, you are required to fully explain the legal basis of any treaty-based position on IRS Form 8833. Without the legal explanation of the position in Section 6 of IRS Form 8833, you risk an IRS audit, civil tax penalties, and even criminal tax prosecution unless there is a legal basis for not filing the form.

Will My Funds Be Taxed?

In order to obtain the legal basis to take this position regarding US tax Australian superannuation, it is necessary to obtain a tax opinion from our firm. A tax opinion is a legal opinion issued by a U.S. tax firm that shields taxpayers from certain tax penalties and interest thereon. The tax opinion also guarantees that, in the event of an audit, our firm will represent you without additional charge and fully defend the position to shield you from any and all liability. The tax opinion perpetually exempts the Australian Superannuation Fund from U.S. taxation regardless of the amount of gains within, distributions from, and income attributable to the fund.

Moreover, if you’ve paid U.S. tax on your Australian Superannuation Fund in prior tax years, we can file amended tax returns to recover those taxes. Contact our firm today to obtain the tax opinion and shield your Australian Superannuation Fund from U.S. taxation.

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