How is Australian Superannuation treated?

[RetireJapan]

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?

Once you have been here for five years you need to declare any worldwide income to the Japanese tax office. Before five years, you might not need to declare income that you don't bring to Japan.

[hbd]

Tokyo, you'll be glad to know I did some reading and now more or less understand the meanings of what you'd described as 'a taxed (meaning tax has been already paid) and an untaxed element for which I have to pay Oz tax'. However, it seemed that that was a situation applicable only for retired people between 55 and 60. For those over 60 who are fully retired and drawing a super-based income stream, isn't it the case that investment earnings in Australian super schemes are not taxed unless they add up to quite large amounts?

On the uncomfortable matter of 市民税、県民税　and 健康保険料 payments by retirees here, the former 2 taken together are said to cost about 10% of one's taxable income, while the latter could cost anything up to around 60万 p/a depending on where one lives. That means that for someone who has a healthy taxable income in retirement of 500万、those 3 will cost at very least 100万 each year! Please correct me if I'm wrong about that. For the benefit of Retire Japan members who aren't from Oz, let it be known that NONE of the 3 exist as compulsory taxes for retirees back there, so the question of "Why on earth retire in Japan rather than Australia?" looms very large. Yes, we all have our own reasons and circumstances, of course, but if anyone thinks it makes sense in terms of the figures, please speak up!

[Tokyo]

Superannuation is complicated.

While superannuation is complicated, it is not a problem. In fact, the more, the merrier. Taxation is the real problem. More to follow.

[Tokyo]

Tokyo, you'll be glad to know I did some reading and now more or less understand the meanings of what you'd described as 'a taxed (meaning tax has been already paid) and an untaxed element for which I have to pay Oz tax'. However, it seemed that that was a situation applicable only for retired people between 55 and 60. For those over 60 who are fully retired and drawing a super-based income stream, isn't it the case that investment earnings in Australian super schemes are not taxed unless they add up to quite large amounts?

On the uncomfortable matter of 市民税、県民税　and 健康保険料 payments by retirees here, the former 2 taken together are said to cost about 10% of one's taxable income, while the latter could cost anything up to around 60万 p/a depending on where one lives. That means that for someone who has a healthy taxable income in retirement of 500万、those 3 will cost at very least 100万 each year! Please correct me if I'm wrong about that. For the benefit of Retire Japan members who aren't from Oz, let it be known that NONE of the 3 exist as compulsory taxes for retirees back there, so the question of "Why on earth retire in Japan rather than Australia?" looms very large. Yes, we all have our own reasons and circumstances, of course, but if anyone thinks it makes sense in terms of the figures, please speak up!

There’s not only the double taxation in local taxes I argued earlier that I am paying now, but there are other problems caused by living under different tax systems which you may or may not know about. Since this goes way beyond superannuation, I will start a new thread on Oz tax separately but later.

As to your confusion with superannuation’s untaxed element, just go to the Aust Tax Office for the lowdown. This may not apply to you but it applies to me because of my particular superannuation scheme.
https://www.ato.gov.au/Super/APRA-regul ... r-benefit/

With regard to how much to set aside for future planning, I believe your figures are in the right ballpark but maybe 10~20% high. And the figures should be enough to also cover your monthly cost of 12,000 yen for 介護保険. As you can see, these costs will not be cheap but hopefully you will have little to no national tax due here.

[hbd]

There’s not only the double taxation in local taxes I argued earlier that I am paying now, but there are other problems caused by living under different tax systems which you may or may not know about.

Many thanks for reminding me of the (currently) 12,000 yen for 介護保険, and for your encouraging feedback re my figures being a little on the high side!

It seems my super fund is APRA-regulated ...

The principal 'other problem' I'm aware of is the 1/2 year ずれ between the tax years: If you're paying tax in Oz (like me, at over 32% as a non-res for tax purposes, I imagine) but claiming it all as a foreign tax credit, I imagine you have to go do the 確定申告 in March, but PAY tax on the assessment of your foreign income for the preceding year's July-December period, which has not yet been assessed by the ATO, then come back again later in the year with evidence of what the ATO levied, THEN get the tax credit and have your March payment reimbursed. Double the fun! My local tax office said that was the only way they could deal with the out-of-kilter tax periods.

I very much look forward to your thread on the joys of living between tax systems.

[Tokyo]

@hbd

Good luck with your planning but please regard my answer as only a rough guide since we have different super schemes and also since local taxes vary so much even within the same city. Before retirement, I always simulated worst case scenarios (well maybe not another Great Depression) to minimize income expectations (such as poor exchange rates) and maximize costs (max taxation levels and luxurious travel standards). When I actually retired I then was pleasantly surprised by how much better conditions were (other than the $A/¥ exchange rate which was at my worst estimate).

As to the half year ズレ problem, yes, it’s an odd one isn’t it. But it’s not too much of a bother for me. I basically ignore it and just declare my Oz tax year income as it is. I rationalize this as being as good as any estimate I could otherwise make, plus it’s true. And on the rare occasion I have trouble with the Japanese tax office guys I hit them with this nugget after a while. Their eyes glaze over and they quickly find a compromise which will get the gaijin out of the way as they have 20 other people waiting for their turn. I have learned to weaponize this problem to my advantage. It works best if you have already been explaining your situation for 15 minutes without making any progress.

[hbd]

Once you have been here for five years you need to declare any worldwide income to the Japanese tax office. Before five years, you might not need to declare income that you don't bring to Japan.

Ubear-sama, I have potentially good news for you and others with Australian superannuation. This may or may not apply to your particular super fund, but with respect to mine, I have been told the following: Our yearly investment earnings are not 'our' earnings, but the earnings of the company (the super fund), subject to Australian company tax laws, but irrelevant to us personally. The earnings only become our money when we claim the super, as a lump sum or pension. They were actually very clear on that point, that no tax office anywhere is allowed to take an interest, regarding an individual's tax, in the earnings of super, because it's not the individual's money until s/he takes it out of the fund. Then (and only then) it becomes subject to the tax rules of whatever country one is residing in. If that country is Australia, of course, the money is tax free for over-60s.

Now that seems to be a crystal clear statement, on the basis of which we can say that no, you are not obliged to declare earnings on your Australian super to the J tax office, because they are not your earnings until you take money out of the fund.

[ayetobee]

Thank you all for your posts to date.

hbd - not paying tax until it is our money makes sense, it remains the Super/Companies funds until we draw upon it. Once we draw upon it, it is treated as income which we pay tax on in Japan, if here longer than five years. Thank you that's an important ruling I wouldn't have thought of.

Tokyo - I can see your experience in this is pretty valuable, have you ever taken a lump sum out and if so, what tax did you have to pay on it?

The fund also earns interest/dividends per annum, and if you have a large Super balance it could exceed the amount you withdraw (possible yes, probable no) so does the rule that they are the Super funds and non-taxable continue?

Because I have to pay tax on these funds to the Japanese Tax Office I am trying to hypothesise scenarios to minimise it, so what happens if I am declaring the Super on my Oversees Asset Reporting each year and then move it to another account once I reach preservation age? Is that cheeky or legitimate? It seems cheeky as they aren't my funds until I draw them from hbd's explanation above. Another view is that I am being completely honest about all funds I have to the JTO. I would need to pay tax on the interest/dividends in this scenario as they are earned per annum until I withdraw the funds. Worth looking into.

In another scenario, if I am still in my first five years/not yet a resident for tax purposes in Japan, it may be advantageous for me to take all the cash out before I reach preservation age and invest it myself and not cop the 20% tax in Japan and instead deal with the early withdrawal taxes in Australia. I'll do the maths on that next and post back. I would also need to accept the risk that the Aus-Japan treaty or treatment of Super may change before I reach preservation age. Also worth a look.

[Tokyo]

Tokyo - I can see your experience in this is pretty valuable, have you ever taken a lump sum out and if so, what tax did you have to pay on it?

I have never taken any lump-sum out of super so I’m not much help to you there.

As you suggested it may be advantageous for you to take the money as a lump sum before you become a Japanese tax resident, but it really depends on the details of your age and super plan. For my particular super plan, it was far better to take a pension than the max lump sum because there was no way I could have generated as much income from investing the low lump sum offered. Even after paying Japanese tax for shiminzei etc, I am way better off receiving my Aussie pension.

[Tkydon]

In Aus, as a non-resident for tax purposes, you can claim reduced rates of Withholding on various types of income in Australia under the Japan Australia Tax Treaty.

The Text of the Japan - Australia Tax Treaty is here
https://www.mof.go.jp/tax_policy/summar ... 00131b.pdf

These are probably the most relevant sections as an individual:
Article 10 - Dividends
According to Article 10, Paragraph 2(b), as a Resident of Japan for Tax Purposes, you should be able to claim a reduced amount of Withholding Tax on Dividend Income in Australia of 10%, instead of the standard 30%.
Article 11 - Interest
According to Article 11, Paragraph 4, as a Resident of Japan for Tax Purposes, you should be able to claim a reduced amount of Withholding Tax on Interest Income in Australia of 10%
Article 17 - Pensions and Annuities...

Article 17
PENSIONS AND ANNUITIES
1. Subject to the provisions of paragraph 2 of Article 18, pensions and other similar remuneration paid periodically to an individual who is a resident of a Contracting State (i.e. Japan...) shall be taxable only in that Contracting State.
2. Annuities paid to an individual who is a resident of a Contracting State shall be taxable only in that Contracting State.
3. Lump sums in lieu of the right to receive a pension or other similar remuneration, or to receive an annuity, paid to an individual who is a resident of a Contracting State shall be taxable only in that Contracting State.
However, such lump sums may also be taxed in the other Contracting State if they arise in that other Contracting State.
4. The term “annuity” means a stated sum payable periodically at stated times during the life or during a specified or ascertainable period of time under an obligation to make the payments in return for adequate and full consideration in money or money’s worth.


These sites in Aus refer:

https://www.ato.gov.au/business/payg-wi ... ts/?page=5

https://www.ato.gov.au/individuals/work ... variations

https://www.ato.gov.au/Forms/PAYG-withh ... plication/



You should submit PAYG Withholding Variation Application (Online or Paper NAT 2036) every year to reduce the amount of any pay as you go (PAYG) tax withheld from income paid to you in the application year, and the payer (Aus Broker, etc.) can't vary the withholding rate until they receive an official variation notice from the ATO. You can submit the application in April for the following Tax Year starting in July.


However, the Superannuation is a Public Pension, and so is taxed very favourably in Japan.

If you take a Lump Sum, this comes under the 'Retirement Income Taxation' 退職金 provision.

If you haven't received a Lump Sum in the past, then you received a Special Deduction of 400,000 per year for the first 20 years and 700,000 per year over 20 years, to the full number of Years of Service. (This may also be taxable in Aus, see para 3 above, but you cannot use a Foreign Tax Credit for Lump Sum). (If you have received another Lump Sum, recently, the Special Deduction will be adjusted down)
The remaining amount after deduction of the Special Deduction is then divided by 2 (Half) to achieve the Taxable Amount.
This is then then taxed according to the Standard Marginal Income Tax Rates below, but this is treated completely stand-alone, so has no impact on, or is not impacted by your other income in the same year.

e.g. If you received a Lump Sum after 23 years of service, the first Y10.1M (20 x 400,000 and 3 x 700,000) would be completely tax free. i.e. the total taxes (National, Reconstruction, and Residents' Taxes) would be Y0.

Anything over the Y10.1M would be halved and then the Half would be taxed according to the Standard Marginal Income Tax Rates

Band ― National ― Reconstruction ― Residents' Tax Rates

Income tax rates
Marginal Tax rate (％) National - Reconstruction - Residents' Taxes = Total
Under 1,949,000 ― 5% ― 0.105% ― 10% = 15.105%
1,950,000 ― 3,299,000 ― 10% ― 0.21% ― 10% = 20.21%
3,300,000 ― 6,949,000 ― 20% ― 0.42% ― 10% = 30.42%
6,950,000 ― 8,999,000 ― 23% ― 0.483% ― 10% = 33.483%
9,000,000 ― 17,999,000 ― 33% ― 0.693% ― 10% = 43.693%
18,000,000 ― 39,999,000 ― 40% ― 0.84% ― 10% = 50.84%
Over 40,000,000 ― 45% ― 0.945% ― 10% = 55.945%

So very favourable.


Another way to think about it would be that anything over the Special Allowance Min(N,20) * 400,000 + Max(N-20,0) * 700,000

Taxed at

Retirement Lump Sum Taxation
Marginal Tax rate (％) National - Reconstruction - Residents' Taxes = Total
Under 3,899,000 ― 2.5% ― 0.0525% ― 5% = 7.5525%
3,900,000 ― 6,599,000 ― 5% ― 0.105% ― 5% = 10.105%
6,600,000 ― 13,899,000 ― 10% ― 0.21% ― 5% = 15.21%
13,900,000 ― 17,999,000 ― 11.5% ― 0.242% ― 5% = 16.742%
18,000,000 ― 35,999,000 ― 16.5% ― 0.345% ― 5% = 21.845%
36,000,000 ― 79,999,000 ― 20% ― 0.42% ― 5% = 25.42%
Over 80,000,000 ― 22.5% ― 0.4725% ― 5% = 27.9725%

(equivalent of twice the width of the band at half the band tax rates as shown above)



According to the Tax Treaty Article 17 above, Regular Pension Payments should not be taxed in Aus. You probably need to file the forms above to get paid Gross.

Pension Income 年金収入.

In Japan, Pension Income is treated as Miscellaneous Income and is aggregated with other Aggregate Tax Method income in the Tax Year.

Your standard deductions apply; Personal, Dependants', and other regular allowances.

Then, there is also the Public Pension Allowance, which applies to Public Servant Pensions, Approved Fund Pensions, National Pensions, or other Pensions paid under Social Insurance Schemes.


Miscellaneous income
Public Pensions
Income of the National Pension, Employee Pensions, Defined Benefit Corporate Pensions, Defined-Contribution Pensions, other Public
Pensions and certain Foreign Pensions, etc.

雑所得
公的年金等
国民年金、厚生年金、確定給付企業年金、確定拠出年金、恩給、一定の外国年金などの所得

but not

Others (Not eligible for the Public Pension Allowance)
Other income, such as Annuities (pensions) under Life Insurance Contracts.
その他
生命保険の年金



The amount of the Public Pension Allowance depends not only on age, but also on your Gross Income and Gross amount of Pensions received in the Tax Year.

https://www.nta.go.jp/taxes/shiraberu/s ... df/002.pdf
Pages 11-12

https://www.nta.go.jp/taxes/shiraberu/s ... df/050.pdf
Page 22

You are required to file a return for Foreign Pensions.

This forum does not support Tabs so is very difficult to present tables... Table Columns separated by ---

Public Pension Deduction.

From 1 Jan 2020...
The amount is calculated based on Age and Total Gross Pension off-set against the total Gross Income from all other sources in the year.

Gross Annual Pension --- Other Income < Y10M --- Y10M to Y20M --- > Y20M

Under 65.
Less than 1,300k --- 600k --- 500k --- 400k
1,300k to 4,100k --- 25% + 275k --- 25% + 175k --- 25% + 75k
4,100k to 7,700k --- 15% + 685k --- 15% + 585k --- 15% + 485k
7,700k to 10M --- 5% + 1,455k --- 5% + 1,355k --- 5% + 1,255k
Greater than 10M --- 1,955k --- 1,855k --- 1,755k


Over 65.
Less than 3,300k --- 1,100k --- 1,000k --- 900k
3,300k to 4,100k --- 25% + 275k --- 25% + 175k --- 25% + 75k
4,100k to 7,700k --- 15% + 685k --- 15% + 585k --- 15% + 485k
7,700k to 10M --- 5% + 1,455k --- 5% + 1,355k --- 5% + 1,255k
Greater than 10M --- 1,955k --- 1,855k --- 1,755k


See the Tables reproduced here:
https://www.tax.metro.tokyo.lg.jp/book/ ... ok2021.pdf
https://www.tax.metro.tokyo.lg.jp/book/ ... k2021e.pdf
Page 8.
Calculating the Public Pension Plan Deduction (Calculation Table)