Q & A – Options for temporary residents accessing super

Find out what your peers are asking – based on real-life questions submitted to TechConnect.

By William Truong, Technical Services Manager

Q: My client entered Australia in 2015 on a temporary resident visa. Their employer has been making super guarantee contributions into an Australian super fund. 

Can they access their super benefits under the ‘Retirement’ condition of release or do they have to wait until they reach age 65? How will their super benefits be taxed?

A: People who have accumulated superannuation while working in Australia on a temporary resident visa issued under the Migration Act 1958 (excluding visa subclasses 405 and 410 and New Zealand residents entering Australia) are subject to restrictions on conditions of release which are different from those applying to permanent residents.

Unfortunately, as a temporary resident, they cannot withdraw their super benefit under the ‘Retirement’ condition of release.

Temporary residents can only access their super benefits if they have satisfied one of the following conditions of release:

  • former temporary resident – this results in a Departing Australia Super Payment (DASP)
  • terminal medical condition
  • permanent incapacity
  • temporary incapacity
  • death
  • a condition of release was satisfied by the person before 1 April 2009.

So, consider whether they may satisfy one of these usual conditions of release, which has beneficial taxation implications, otherwise they may access their super under DASP with higher withholding tax. This tax is explained in the following section.

What is DASP?

As a temporary resident, when a person leaves Australia permanently and their visa is cancelled or expires they can access their Australian super benefits as a lump sum under DASP.

The super benefits will be subject to withholding tax as follows:

Tax components Withholding rate
Tax-free component Nil
Taxable (taxed component) 35%
Taxable (untaxed) 45%

A higher withholding tax rate of 65% applies to DASP for taxable amounts made under working holiday visa (subclass 417 or subclass 462 or an associated bridging visa). 

Former temporary residents should consider applying for DASP from their super fund within six months of their visa expiring or being cancelled and departing Australia. Otherwise, the benefits will be transferred to the ATO as unclaimed money, which can be claimed from the ATO at any time (subject to DASP tax).

While funds are with the ATO they earn interest at CPI, and are not subject to tax.

If your client hasn’t withdrawn their super and later returns to Australia as a permanent resident, they have the option of either transferring his super to an Australian super fund or applying for it to be paid to him directly – either way, the payment is still considered a DASP and is taxed accordingly.

 

More information

If you have any questions, or would like more information, please contact the IOOF TechConnect team on 1300 650 414.

Disclaimer
The information in this section of the website is intended for financial advisers only and is not to be distributed to clients. It has been prepared on behalf of Australian Executor Trustees Limited ABN 84 007 869 794 AFSL 240023, IOOF Investment Management Limited ABN 53 006 695 021 AFSL 230524, IOOF Investment Services Ltd ABN 80 007 350 405, AFSL 230703 and IOOF Ltd ABN 21 087 649 625 AFSL 230522 based on information that is believed to be accurate and reliable at the time of publication.