How is Australian Superannuation treated?

[UBear]

I did some research about retirement in Japan and being supported by an Australian based Superannuation fund during retirement

My Japanese Pension payout is looking around 300,000 JPY / year.
As the superannuation is existing, I am trying to boost that.
I have been making voluntary contributions after tax for the majority of the time.


After reading I thought that I could cement understanding by speaking to a series of professionals and spoke to

a) My superannuation fund provider
b) Australian Accountant
c) Australian Legal Advisor

All 3 gave conflicting advice about how an Australian Superannuation drawing and/or payouts.

Overseas Superfund provider said not taxable in Japan.
My legal advise was that the payouts are already taxed when I receive them and they are compulsory savings.
Yet Australian accountant says likely taxable.

Does anyone have experience with this that they can pass on?

[RetireJapan]

-I moved the topic to a more appropriate forum.

Not sure why income from Australian Super would be untaxed in Japan. My guess is that it would be treated as ordinary income.

Anyone else?

[UBear]

My understanding is that

• 15% taxed at contribution
  Higher tax rate for volunteered contributions (or after tax)
  15% taxed on growth
  No tax upon drawings. unless pre 60 yo

My understanding with income tax, is that I would have to draw over something like 12mil / year to get 15% income tax.

So, if considered income, then surely there would be some tax reciprocation or nullify any tax incurred here?

[Tokyo]

Since Australia and Japan have a tax treaty to eliminate double taxation, you will not have to pay income tax here since you appear to be doing that already in Australia.

The bad news is that your Oz superannuation will boost your income total for the purposes of calculating the separate category of 市民税／県民税 and for which there is no equivalent in Oz.

[hbd]

I have more bad news: I enquired about this very matter when I did my kakutei shinkoku a few months ago, and a staffer at the tax office told me that money I receive in retirement from my Australian super would be taxed as foreign income at the standard rate, regardless of the fact that it had been taxed as I accumulated it over decades back home. That news put a very big dent in my plans (which soon grew even bigger due to my employer's ruling that anyone turning 61 must suffer a 10% pay cut!)

Retirement in Japan is looking considerably less attractive for someone whose principal income will be from Australian super funds. Does anyone else face this situation currently or in the near future? Does anyone know of a tax lawyer well versed in both the Japanese and Australian systems?

[hbd]

you will not have to pay income tax here since you appear to be doing that already in Australia.

Yesterday I forgot to say that I don't think that's right. The thing is, all the tax was paid in Australia before one starts drawing on the super by converting it into a 'pension', or else taking it as partial or lump sums. That is precisely why there is NO TAX to be paid in Australia after that point. One doesn't even have to declare the super-based income on one's tax return. The Japanese tax office, however, sees it as regular income and has no mechanism for recognizing the tax that was paid in years past as the money was being accumulated. With great difficulty I read the A-J tax treaty, but I saw no wording that would provide protection against this misfortune.

[UBear]

This is where I get lost, and it is hard to get documentation, most because not asking the right questions.

From the AMP Superannation page.

How your super is taxed differs depending on your age, contributions and other factors, so it’s important to understand the different tax implications that could apply to your nest egg.
Super can be a tax-effective way of saving for retirement. Generally, money invested in super is taxed at a lower rate than your personal income tax rate. It’s structured in this way to encourage workers to save for their retirement.

The money you invest in super can be taxed at four different stages: when the money goes in (super contributions), while it’s in your super fund (investment earnings), when you withdraw it (super benefits) and when you die (super death benefits).

But the ATO’s tax treatment of your super savings is different at each of these stages. Below we explain the tax implications of each stage.
Tax on super contributions
The amount of tax you'll pay on money going into your fund (super contributions) depends on the type of super contribution and your circumstances. Here are some of the key factors to consider.

How concessional contributions are taxed
Concessional (before tax) super contributions include employer super contributions made on your behalf, any salary sacrifice contributions you make, or any personal contributions that you claim a tax deduction on in your tax return. These contributions are taxed at 15% when they are received by your super fund (up to a cap of $27,500 per year), provided you earn less than $250,000 annually.

If your concessional contributions exceed the concessional contributions cap of $27,500 per year, the excess is included in your tax return and taxed at your marginal tax rate (less an allowance for the 15% already withheld by your super fund). An excess concessional contribution charge will also apply.

How non-concessional contributions are taxed
Non-concessional (after tax) super contributions aren’t subject to tax as they are made with money you’ve already paid tax on (such as a regular salary payment). Types of non-concessional contributions include contributions your spouse makes to your super or personal contributions that you don’t claim as a tax deduction.

There is a non-concessional contribution cap too, which, for people under 65 is $100,000 a year and up to three years of annual caps ($300,000) under bring-forward rules if you’re eligible. However, penalties may apply if this cap is exceeded.

How low-income earners are taxed
If you’re a low-income earner (earning up to $37,000 per year), the low-income superannuation tax offset makes sure you don’t pay a higher rate of tax on your super contributions than your income tax rate. The offset will be paid directly to your super account and the payment will be equal to 15% of your concessional contributions for the year, capped at a maximum of $500.

How high-income earners are taxed
If you earn more than $250,000 a year, concessional contributions are generally taxed at an additional 15%, bringing the total tax on these contributions to 30%; however, this is still typically less than the marginal income tax rate of 45%.

If you don’t quite earn $250,000 but your total income, when your concessional contributions are included, exceeds $250,000, only the concessional contributions which make your total income exceed $250,000 are subject to this additional tax.

Tax on super investment earnings
The tax that applies to super investment earnings varies depending on whether your super is in accumulation phase or pension phase.

How super investment earnings in accumulation phase are taxed
When you’re still working and growing your super, the investment earnings generated by your super are taxed at a maximum rate of 15%. But if the earnings are capital gains from an asset owned through your super for more than 12 months and then sold, the tax on the gain is effectively reduced to 10%.

The amount of tax your fund pays may also be reduced by tax deductions or tax credits that apply to some types of investments.

How super investment earnings in pension phase are taxed
If you’re drawing a retirement income stream from your super, then the investment earnings are exempt from tax, including capital gains.

This tax exemption on investment earnings also applies if you commenced the income stream due to permanent incapacity. However, if you’re drawing a transition to retirement income stream the investment earnings are taxed at 15% until you turn 65 or notify us that you have met a prescribed condition of release.

A limit of $1.7 million (in 2021/22) broadly applies to the amount you can transfer into the tax-exempt retirement pension phase.

Tax on super withdrawals
Once you’ve met a condition of release, you can start accessing your super in a number of ways. The way these withdrawals are taxed can vary based on a number of factors, discussed below.

Tax when you withdraw your super as an income stream
If you access your super as an income stream and you are age 60 or over, your pension payments will be tax free.

If you have reached your preservation age, but you’re under age 60 and receiving an income stream (for example, you’ve retired after reaching preservation age), no tax is payable on the tax-free component of your pension payments (which is typically made up of your non-concessional contributions and any government co contributions) but tax may be payable on the taxable component of your pension payments (which is typically made up of your concessional contributions and investment earnings). This taxable component will be added to your income and taxed at your income tax rate less a tax offset equal to 15% of the taxable portion of the payment.

Tax when you take a transition to retirement income stream
Income payments from transition to retirement (TTR) income streams (where you can draw down from your super if you’ve reached preservation age but are still working) are taxed in the same way as other retirement income streams depending on your age, as explained above.

The returns on the assets supporting a TTR income stream are taxed at a maximum of 15%, the same as super investment earnings. The earnings on the TTR income stream become tax exempt as explained above when you advise the super fund of your retirement or reach age 65.

Tax when you withdraw your super as a lump sum
If you are aged 60 or over, super amounts that you access as a lump sum are generally tax free.

If you’ve reached your preservation age, but are under age 60, no tax is payable on the tax-free component of your withdrawal.You can also withdraw up to $225,000 from your taxable component without paying any lump sum tax in 2021/22 (this is known as the low rate threshold amount).

Any amount you withdraw over the low rate threshold will be taxed at 17 (including the Medicare levy) or your income tax rate, whichever is lower.

Tax when you withdraw your super in other circumstances
Under some limited circumstances, you can withdraw a lump sum from your super before preservation age. In these cases, all of the taxable component of any withdrawal will be taxed at 22% (including the Medicare levy) or your income tax rate, whichever is lower – that is, the low rate threshold amount is not available.

So taxed by your employer before going in and taxed on the gains.
So would that not constitute a tax credit?

[Tokyo]

[/quote]Yesterday I forgot to say that I don't think that's right. The thing is, all the tax was paid in Australia before one starts drawing on the super by converting it into a 'pension', or else taking it as partial or lump sums. That is precisely why there is NO TAX to be paid in Australia after that point. One doesn't even have to declare the super-based income on one's tax return. [/quote]

Perhaps the earlier advice I gave was misleading. I am no superannuation expert but Australian super schemes vary greatly and I do not know the details of most schemes. But the earlier comments I made, as well as those to follow, are accurate for me as they are based on personal experience of receiving super for a few years now.

My super payments are clearly broken into a taxed (meaning tax has been already paid) and an untaxed element for which I have to pay Oz tax (prepared by a registered tax agent in Sydney so I am confident I’m not paying tax unnecessarily). This latter tax I am able to declare in Japan each year to avoid double taxation. I also receive Japanese pension income and other Oz-based income, the latter of which is taxed abroad. As a result of these foreign tax credits from tax paid in Australia, I usually have little, no or a small rebate on national income tax owing in Japan.

The vexing problem for me - as it will be for you and other Aussie residents of Japan getting super - is double taxation on local taxes. Because my income total is quite high, I have to pay a lot of 市民税、県民税　and 健康保険料 despite being retired and despite most of my income being sourced from Australia. I called the tax section of my local prefectural office as well as the National Tax Agency to complain that I am being effectively taxed twice.

My reasoning is that Australia does not have a local tax equivalent to shiminzei or Kenminzei but instead Australians pay a higher national tax rate which then gets redistributed to states/councils in lieu of kenminzei and shiminzei-like local taxes. While there was some sympathy for my argument - but only after hearing just how much higher Australian tax rates are, both Japanese bureaucrats argued that the current system does not recognize these differences. Their position is that ultimately I am not paying double taxation on national tax so there is nothing they can do for me.

I am not happy to be paying local taxes in effect twice but there appears to be nothing else other than to start agitating for a new agreement which accounts for such international differences in taxation systems. This is probably futile given that the current agreement appears to have been originally drafted to satisfy large business and corporate taxation concerns, not the handful of retired gaijins without voting rights in their adopted country.

Sorry to hear about the 10% pay cut for getting old. Ouch! As you are aware, it’s a standard practice for Japanese businesses, although I have heard those cuts are often much larger than yours. It is fortunately much less common in the academic sphere. (Perhaps it is the employer’s kind way to prepare future retirees to a life of less income? How thoughtful.).

[hbd]

clearly broken into a taxed (meaning tax has been already paid) and an untaxed element for which I have to pay Oz tax (prepared by a registered tax agent in Sydney so I am confident I’m not paying tax unnecessarily).

Thanks very much for the detailed response. I may have misunderstood (again!) but while it's clear to me that the taxed element means superannuation income on which 'tax has been already paid' (as you were building up the super in the Au system), how can an 'untaxed element' be income for which you have to pay Oz tax??

By the way despite the recent 10% pay cut here, I suspect I will have a similarly 'high' retirement income as I've accumulated a good amount in super - for a mere academic! - and can also gain a little from a rental property back there, so I'd be very interested to know approximately how much you'd recommend I plan to put aside (say, monthly?) for those 市民税、県民税　and 健康保険料 . I can't decide to retire until I can more or less see what the monthly budget will be.

[UBear]

Superannuation is complicated.

There might be some early control of tax implications by taking as selective drawings rather than regular payouts.
However, with my limited understanding, later by age and/or by thresholds of amounts, then there are forced payouts to keep the maximum amount in control

But again, my understanding is that until those funds are moved/transferred to Japan, they are not taxable. Is that correct?