Understanding the Core Risk
Although many foreign retirement funds resemble Australian superannuation structures, they often fall short of meeting the legal definition under Australian tax law. The consequences can be significant:
- A fund may fail to qualify as a foreign superannuation fund or scheme for the payment of retirement benefits, especially if it permits early access (e.g. upon cessation of employment).
- Where the fund does not meet these definitions, it may be a foreign trust, and certain amounts of capital that are withdrawn may be taxed under section 99B of the Income Tax Assessment Act 1936.
Section 99B is not a concessional tax provision. It was designed as a specific anti-avoidance measure, but applies more broadly than its original purpose. Amounts assessed under section 99B are taxed at the individual’s marginal rates. In the context of withdrawals from overseas funds, this often means amounts taxed at 47%.
Example Scenario
Mojo is an expatriate who has worked for 15 years in Hong Kong, contributing to a company-sponsored provident fund. Upon termination of employment, Mojo withdraws AUD500,000 and returns to Australia. Despite the contributions and earnings of the fund all occurring while Mojo was a non-resident, his withdrawal may be taxed as a capital distribution from a foreign trust.
Timing and Residency
Tax outcomes under section 99B depend heavily on when the withdrawal occurs relative to the individual’s residency status.
If funds are withdrawn at any time in the income year when the individual becomes a resident of Australia, section 99B will need to be considered for that income year. This is even if the individual was a non-resident at the time of the withdrawal.
If our friend from Hong Kong withdraws their funds in November 2025 and then departs Hong Kong in December 2025, those withdrawals may still be subject to section 99B in the Australian income year ending 30 June 2026.
Section 99B also applies where amounts are ‘applied for the benefit’ of a person. There are some specific examples of when this happens in section 99C. It is important to check whether the terms of the fund result in a taxing point occurring before a withdrawal is made.
I am looking to return to Australia permanently – what do I do?
Proactive planning and specialist advice are essential before making any withdrawals or re-establishing Australia residency.
Without proper guidance, returning Australians may find themselves subject to unintended tax burdens on retirement savings earned overseas.
Need help?
If you would like assistance on this issue, please contact a member of our team or send us a confidential enquiry.
