The transferred proceeds from an overseas retirement fund can be received electronically or via a cheque. If it is received via a cheque in Pounds Stirling, it is possible to deposit in an Australian bank account but it may take up to eight weeks to be cleared. The cheque needs to be endorsed on the back across to the financial institution. There will be charges associated with the conversion and clearance of the foreign currency cheque. If the cheque is dishonoured, then it may take some time before one is aware of this and additional charges may be incurred. A speedy electronic transfer is far better.
When one has periodic pension payments remitted to Australia, there are specialist foreign exchange transfer firms that can facilitate this. They can consolidate smaller amounts and even lock in forward exchange rates. A better rate can be obtained than the retail exchange rates generally quoted.
As an absolute minimum, one can expect the transferring fund to require:
- A discharge/transfer form;
- A lifetime allowance declaration;
- Confirmation that the receiving scheme is a qualified recognised overseas pension scheme with a copy of the approval letter;
- Completion of a CA1881 HMRC form acknowledging the protected rights are lost on an overseas transfer.
Be very careful not to exceed the single transaction fund cap amount. This is a SIS Act regulation requirement and returning as required the excess amount to the UK is a very messy process. Watch out for other items that count towards the contribution cap and check whether the “bring forward” provision may already be triggered.
The election for the assessable amount to be included in the Australian fund’s income requires the overseas account to have a nil balance after transfer. It may be necessary to use a UK SIPP provider to meet this requirement if the paying UK fund is unwilling to make a series of transfers in the correct order. It is permissible for UK funds to make partial transfers/rollovers. The same does not apply to KiwiSaver accounts in NZ that operate on an all or nothing basis.
Be careful also as to how the transfer is reported in tax returns as it is not very intuitive. For example, if a person transferred $420,000 from a UK fund to an Australian SMSF with the following components:
- $400,000 vested at time of transfer including
- $50,000 in fund earnings
- $20,000 added by foreign employer at time of transfer as a discretionary payment
Then the reporting in the SMSF fund return is:
- $350,000 at the Non Assessable foreign fund amount label
- $20,000 at the Assessable foreign fund amount label
- $420,000 at the Total Contributions label.
The $50,000 does not count towards either the concessional or non-concessional contribution caps. If it is erroneously included under the Assessable foreign fund amount it will be counted.
The NetActuary Team