US Tax Reporting Requirements of Australian Superannuation Pension Plan

By Evgenia Belyavskaya, EA, Partner and James Downing, CPA, Partner

Countries all over the world offer a variety of long-term investment options to help people save for retirement. In the United States, these often come in the form of 401(k) and Pension Plans or Individual Retirement Account arrangements. From a U.S. perspective, generally, tax on contributions to qualified plans and the earnings thereon are deferred until such time that the individual participant withdraws the funds from the plan. To receive this tax-advantaged treatment, the plan must meet the requirements specified in the Internal Revenue Code (IRC). Although U.S. tax plans offer tax deferrals and potentially lower tax rates on distributions, other country plans or “schemes” offer superior benefits.

In 2023, while conducting research to benchmark each country’s retirement income system, the Mercer CFA Institute Global Pension Index ranked Australia as the fifth out of the 47 analyzed pension schemes that offer robust retirement structures, delivering up to an 11 percent return on investment. This return provides for a quite comfortable retirement for its participants. Such retirement mechanism in Australia is called the Superannuation Fund (Super). 

Overview of the Australian Superannuation Plan

A Super is an employer contribution scheme paid into private-sector arrangements mandated by the Australian Government. It includes employer-mandated contributions, employee voluntary contributions made using post-tax funds or contributions by the self-employed individuals paid into private-sector plans.

One of the major differences between a Super plan and its U.S. equivalent is the source of its funding. In the U.S., most conventional retirement plans are discretionary – meaning employees and employers have discretion over what to contribute. Australia mandates that employers make non-discretionary contributions to an employee’s Super if the required conditions are met. 

Classification for U.S. Tax Purposes

Typically, to qualify as a retirement plan, a plan must be created or organized in the U.S. and meet IRC statutory requirements. As Australian Super funds are created and organized in Australia, they would not qualify for the same favorable tax treatment provided to conventional U.S. retirement plans. The issue that arises for many U.S. taxpayers with an Australian Super is proper tax treatment and what reporting, if any, is required in the U.S. 

Generally, an Australian Super fund would be classified as a foreign trust. Depending on the terms of a Super plan and activity between the participant and the plan, a Super account may be classified as a grantor trust or complex/non-grantor trust in the U.S. To determine which classification is applicable to your type of Super plan, one would need to understand the funding of the trust and the control that a participant has over contributions to such a plan.  As the contributing U.S. person would be considered an owner of the contributed assets, the trust would be considered a grantor-type trust.  The key takeaway here is that the classification of the trust is conditional on the source of the funds contained within the trust.

U.S. Taxation and Reporting Requirements

U.S. tax treatment of the grantor trust and non-grantor trust are significantly different. Contributions to a trust may be taxable to a U.S. person. In addition, investment growth throughout the reporting period may also be subject to tax in the U.S.

In general, grantor trusts are required to file Form 3520-A on an annual basis, due March 15th of the succeeding year, with a six-month extension available. Further, a U.S. owner may be required to file Form 3520 to disclose ownership of a foreign trust, as well as any contributions made to or distributions received from the trust. 

Non-grantor trusts are not required to file a Form 3520-A. Form 3520 may potentially be required only in the year of distribution, as it discloses the receipt of the funds and includes the required calculations for the determination of taxable income.

IRS Relief

The IRS has identified the burden of the additional information reporting by individuals with foreign retirement accounts.  IRS Notice 2020-17 exempts filers from certain informational filing requirements (i.e., Form 3520-A and Form 3520) subject to certain criteria. This does not exempt the individual from the required income inclusions, only the additional informational filings. Other important reporting to be considered would be Form 114 (foreign bank account reporting), Form 8938 (FACTA compliance) and Form 8621 (passive foreign investment company) for the assets held in trust, which are considered foreign funds (e.g., mutual, ETFs, etc.).

It is imperative to seek professional advice, as non-compliance may give rise to significant failure-to-file penalties or failure-to-timely-file penalties related to the above-mentioned forms.

PKF O’Connor Davies Recommendation

There are several tax events that should be analyzed when assisting U.S. tax residents with the preparation of their U.S. individual income tax returns:

  • Contributions to the Super fund.
  • Growth of the investment over time or throughout the reporting period.
  • Distributions from the Super fund at the time an individual reaches a certain age.

There is no clear guidance regarding reporting of Superannuation plans by the IRS, and we recommend reviewing each such pension scheme on a case-by-case basis.

U.S. tax resident individuals who hold Superannuation plans or are offered such plans because of their remote work in Australia should be aware of the complexities in U.S. tax filings and potential non-compliance issues arising from it. Always seek U.S. tax counsel in connection with unique circumstances.

Contact Us

Our International Tax Group at PKF O’Connor Davies is available to assist with U.S. tax compliance with the Superannuation plan for U.S. tax residents and can assist with any delinquent U.S. tax filings.

For further assistance, please reach out to your PKF O’Connor Davies client service team or:

Evgenia Belyavskaya, EA
Partner | 646.449.6350

James Downing, CPA
Partner | 781.937.5136