How is Australian Superannuation treated?

[ayetobee]

Tokyo - Thanks for letting me know, I think if within the first five years and you cash out but do not bring the funds to Japan you are not taxed. I need to consider then, what will I get if I invest the monies and pay PAYG tax on the dividends and interest ongoing in Australia during the first five years. There is also the option of bringing the funds to Japan after five years and investing it into dividend-bearing shares and having them re-invested per dividend period, which avoids CGT tax in Japan, and therefore performs the same as Superannuation.

Tkydon - Thank you for the very helpful post, it's a lot to consume.

Seeking some clarity on Article 17
1. Pensions ‘and other similar remuneration' shall be taxable only in that contracting state - this means once I convert my super to a pension then I pay tax in Japan?
2. Annuities - the same as above, taxed in Japan.
3. Lump-sum will also be taxed in Japan.

Tkydon - I am not sure what SuperAn is? (However, the SuperAn is a Public Pension, and so is taxed very favourably in Japan.)

[Tkydon]

Tokyo - Thanks for letting me know, I think if within the first five years and you cash out but do not bring the funds to Japan you are not taxed. I need to consider then, what will I get if I invest the monies and pay PAYG tax on the dividends and interest ongoing in Australia during the first five years. There is also the option of bringing the funds to Japan after five years and investing it into dividend-bearing shares and having them re-invested per dividend period, which avoids CGT tax in Japan, and therefore performs the same as Superannuation.

If you have not been in Japan for more than 5 years in the last 10 years, you are considered a Non-Prmanent Resident for Tax Purposes.
With some caveats, any Foreign Income or Capital Gains not remitted to Japan in the year of the Income or Capital Gain will not be taxed in Japan.
That may leave it exposed to taxation in the other country.
The Tax Treaties are there to prevent Double Taxation, but they do not prevent Single Taxation.
If the income is not taxed in Japan, then you cannot legitimately claim the protection of the treaty against taxation in the other country.
Likewise, if the income is not taxed in the other country under the treaty, then you cannot claim a Foreign Tax Credit...

Once you have cashed out, if you wait to the next tax year or later you could transfer it tax free. If you have the money sitting in an interest bearing account or invested making dividends, or capital gains, then that income (but not the base) will be taxable if you remit it to Japan before your 5 years in Japan anniversary, and fully taxable whether you remit it to Japan or not after your 5 years anniversary.

You can try to file the PAYG Withholding Variation Application (Online or Paper NAT 2036) and see if they will allow the reduction of Withholding Taxes... I don't know how they will react in your first 5 years.

If you 'invest it into dividend-bearing shares and having them re-invested per dividend period' in Japan, the dividends will be subject to Dividend Withholding Tax of 20.315%, so 80% of the dividends will be reinvested. If you invest in Mutual Funds that internally reinvest the dividends, then the taxation of those dividends would be handled within the wrapper of the Mutuall Fund, and you would only pay taxes on the CGT when you sold the Mutual Funds.


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.

Seeking some clarity on Article 17
1. Pensions ‘and other similar remuneration' shall be taxable only in that contracting state - this means once I convert my super to a pension then I pay tax in Japan?

Yes, and only in Japan, being the Contracted State of which you are a resident.
File the PAYG Withholding Variation Application (Online or Paper NAT 2036) to get paid Gross in Aus.
The taxation in Japan is favourable.

2. Annuities - the same as above, taxed in Japan.

Yes, and only in Japan, being the Contracted State of which you are a resident.
File the PAYG Withholding Variation Application (Online or Paper NAT 2036) to get paid Gross in Aus.
The taxation in Japan is favourable, though some types of Annuity do not qualify for the Public Pension Allowance.

3. Lump-sum will also be taxed in Japan.

Paragraph 3 above states that any Lump Sum Payout will be taxable only in the country of residence, and then immediately contradicts itself, and says that it may also be taxable by the country where the lump sum originates... You should get advice from the Australian Tax Authority whether such Lump Sums paid to overseas recipients would be taxable in Aus or not.

The taxation on Lump Sums in Japan is very very favourable. You are only charged tax on 50c on the dollar, after deduction of the Special Retirement Lump Sum Allowance.

Superannuation, you could argue, is a compulsory part of the Australian State Pension system, and as such falls under

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

rather than

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


You would have to check with a qualified advisor or the Tax Office in Japan whether Superannuation Pension payments would qualify under 'Public Pensions - Certain Foreign Pensions' above.

Either way, the taxation on regular Pension Payments in Japan is favourable.

[ayetobee]

The Tax Treaties are there to prevent Double Taxation, but they do not prevent Single Taxation.

Understood, I should have said and included that in my initial post. Early withdrawal attracts higher taxes in Australia and is only allowed under specific circumstances. I'd need to do the maths to see when, or if, there is a break-even point in doing this. (e.g. I remove the funds from Super, pay the extra tax in Aust., bring the funds to Japan, invest them in Japan to mutual funds, and re-invest dividends at x% over x years paying necessary taxes and then know if I am better off by which age, if ever).

Superannuation, you could argue, is a compulsory part of the Australian State Pension system, and as such falls under

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

This is interesting. Tkydon have you sought a ruling from the NTO on anything? Not just a ruling on pensions. Is it a matter of attending the office and asking a question and getting a reference number? In Australia, I or my accountant would call the ATO and receive a ruling and be provided a reference number which we would submit with the tax return proving our due diligence and intent (which is important as it usually removes the chance of being audited).

[Tkydon]

The 'Public Pension Allowance' is a single Deduction against the total of all pension income that qualifies as 'Public Pension' (not Lump Sum 'Retirement Income'), so this would include Japan National Pension and from Japanese 401k or iDECO as well.

See here

https://www.tax.metro.tokyo.lg.jp/book/ ... k2021e.pdf
Pages 7-8


You can call the English Help Line at various branches of the NTA, and they can give you more information

https://www.nta.go.jp/english/contact/moreinformation/

TOKYO REGIONAL TAXATION BUREAU (TOKYO KOKUZEI-KYOKU)
03-3821-9070

OSAKA REGIONAL TAXATION BUREAU (OSAKA KOKUZEI-KYOKU)
06-4965-8298

NAGOYA REGIONAL TAXATION BUREAU (NAGOYA KOKUZEI-KYOKU)
052-971-2059

From 9:00 a.m. to 5:00 p.m. on weekdays. If the line is busy, please call again.

[igzem]

I remember in 2019 one member suggested that all Aussies chip in to hire a knowledgable tax lawyer. I still think
the idea was good.
I am still receiving contributions from my employer in Australia, but planning to retire soon and stay here in Japan.
I understand the subject of income stream from pension. What about taking lump sum and transfer them as your savings here?
Or is it taxable also? All in all a lot of grey areas here and seems that there are not many specialists. So, we have to follow our "already done" or "deja vu" scenarios. Unless we want to chip in.

[Tkydon]

I am still receiving contributions from my employer in Australia, but planning to retire soon and stay here in Japan.
I understand the subject of income stream from pension. What about taking lump sum and transfer them as your savings here?
Or is it taxable also? All in all a lot of grey areas here and seems that there are not many specialists. So, we have to follow our "already done" or "deja vu" scenarios. Unless we want to chip in.

It depends how long you have been in Japan.

Less than 5 years. Take the Lump sum in one year and then transfer the cash in the next year - Tax Free.

More than 5 years. Taxable as Retirement Income, whether you remit the money to Japan or not.

Special Allowance Y400,000 per year for the first 20 years, Y700,000 per year for years of service over 20 years.
No other Allowances or deductions allowed. No Foreign Tax Credit

Divide the Total net of the Special Allowance by 2

The Net Taxable amount is then taxed at standard Marginal 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%


That is the equivalent of Total net of the Special Allowance taxed at these rates:

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%

(the amount is halved and taxed at the standard marginal bands, which is the equivalent of twice the width of the band at half the band tax rates as shown above)

[igzem]

igzem wrote: ↑Thu Jan 27, 2022 9:09 pm
I am still receiving contributions from my employer in Australia, but planning to retire soon and stay here in Japan.
I understand the subject of income stream from pension. What about taking lump sum and transfer them as your savings here?
Or is it taxable also? All in all a lot of grey areas here and seems that there are not many specialists. So, we have to follow our "already done" or "deja vu" scenarios. Unless we want to chip in

.

It depends how long you have been in Japan.

Less than 5 years. Take the Lump sum in one year and then transfer the cash in the next year - Tax Free.

@Tkydon
Thank you Tkydon.
I understand 5 years counted since I received my 1st zairyuu card? If so, 5 years will be next summer. So, I may resign in Australia (am 64, in the plan anyway) and take the lump sum continuing to receive consultant retainer from Japanese business.
However, Tokyo mentioned in this thread that pension stream from Aus might be more lucrative even if taxed in japan. So, I need to look at it...

[Tkydon]

Yes, you should run the calcs for all possible scenarios

1. Take Lump sum before 5 year anniversary - Pay Aus Taxes
Leave mony in Aus or Transfer to Japan in next Tax Year - Tax Free in Japan.

2. Take Lump Sum after 5 year anniversary - Pay Aus Taxes And Japan Taxes

3. Take Pension - should be no Aus Taxes - Japan Pension Income Taxes, with standard deductions and possibly Public Pension Deduction, if the Pension qualifies under the Public Pension Deduction provision..


How long have you been working there, and how big would the lump sum be?

If you take it before the 5 year anniversary, then you may be taxed on it in Aus.
Then transfer to Japan in the next Tax Year, tax free.

After 5 year anniversary
File the PAYG Withholding Variation Application (Online or Paper NAT 2036) and they will allow the reduction of Withholding Taxes for Pension Payments, so that would be tax-free in Aus,

http://www.mof.go.jp/tax_policy/summary ... n-AUEN.pdf

But, according to Para 3.

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 shall be taxable only in that Contracting State.

DP - Pension payments would only be taxable in Japan

2. Annuities paid to an individual who is a resident of a Contracting State shall be taxable only in that Contracting State.

DP - Annuity payments would only be taxable in Japan, but

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.

DP - Lump Sums may be taxable in Aus, and you would not be able to use the Foreign Tax Credit in Japan in this case, but the tax rate would be very low in Japan anyway... See calculation below.

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.


e.g. For say 25 years service, in Japan you could claim 25 Years Special Deduction; 20x400,000 + 5x700,000 = 8,000,000 + 3,500,000 = 11,500,000

Actual Gross Amount - 11,500,000 = Net Lump Sum Amount

Net Lump Sum Amount / 2 = Taxable Retirement Income

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%

So probably most of it at 15.105%...


That is the equivalent of

Actual Gross Amount - 11,500,000 = Net Lump Sum Amount

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)

So probably most of Net Lump Sum Amount taxed at 7.5525%...

[igzem]

@tkydon
Lump sum will be around 250K AUD and I have checked with fund, being 64 and provided I retire from Aus company, I can get lump sum and it is not taxable in Aus.
In Japan branch I have worked 4.5 years so far.
My original plan was to get pension as superfund performs well, but what would be the average tax?
And why transfer in the next FY to Japan not in the year lump sum received?
Sorry, many questions...

[ayetobee]

And why transfer in the next FY to Japan not in the year lump sum received?

As far as I know, if you remit funds in the same year you receive them from a foreign country to Japan, then you pay tax on them in that tax period in Japan. It's treated as income. If you do it the year after, then it's not considered income. I think I am correct in saying this is only effective if done within the first five years.
The reason they become your funds is that your Super is considered the Super Funds monies, as though it is a company, and not yours. It pays you.

I also have a question;
What happens if I return to Australia after I have been in Japan for five years, for any reason, temporarily? Do I need to submit a tax return in Australia as an Australian that year? How would that affect tax declarations in Japan? I think I need to submit one in Japan as well, which means if I receive the Super monies in that year they take the 20%. Not sure.

And another one;
I've been trying to figure out if my super should be declared each year in the Oversees Asset Reporting report, does anyone know?