Tax on Pension Transfers – ATO reversal (360)!!

[Andrew from Vista Financial]

This post is particularly topical at the moment given the thousands of people transferring their pensions due to the impending transfer ban come April 6.

 

I will give a bit of background on this first.

 

Up until around 3 years ago the general consensus to calculate the growth known as Applicable Fund Earnings (AFE) and subsequent tax liability on a pension transfer to Australia was worked out using the GBP value at date of residence against GBP value on receipt of funds in Oz with conversion taking place using the exchange rate at date of receipt of funds ie transfer in date. Let’s call this method 1.

 

It came to light that there was also another method sometimes being used on the basis of using the pension GBP amount at date of residence converted to A$ at that date against the GBP amount on receipt of pension monies converted to A$ on date of receipt. Let’s call this method 2.

 

The ATO spent several months discussing which method should be used universally and since then (for around the last 2.5 years) have been working on the basis of method 2.

 

HOWEVER, we were notified last week when we received a call from the ATO to inform us that an ATO Interpretative Decision had been released which states that Growth on Foreign Super Transfers (ie UK Pension Transfers) as of the release date (13/02/15) would now be treated using Method 1 going forward!!!

 

The implications of this new change are that anyone transferring a pension now where the exchange rate was lower than it is now when they first arrived/became a resident will benefit (pretty much the last 6 years) and anyone transferring a pension now when the exchange rate was higher than it is now when they first arrived/became a resident will be disadvantaged.

 

Therefore it is important that anyone who has recently transferred a pension or who is in the process of transferring a pension to ensure the correct tax is paid as this new ruling could mean a difference in some cases of up to thousands of dollars in tax and it is certainly unlikely at the moment that this is common knowledge.

 

Regards

 

Andy

Edited February 25, 2015 by Andrew from Vista Financial