Superannuation and US tax: compulsory in Australia, unsettled in the US

Every other problem wrapper in expatriate tax is one you chose. A Canadian opens a TFSA; a French saver opens a PEA; a Briton opens an ISA. Superannuation is different: the Superannuation Guarantee obliges your employer to contribute a percentage of an employee's earnings, and an employee cannot decline it. An American on an Australian payroll acquires the account by operation of law.

Three groups sit outside that, and they matter because they are common expat profiles: the genuinely self-employed and contractors not engaged principally for labour, for whom SG is not an employer obligation at all; high earners with multiple employers, who can obtain an SG shortfall exemption certificate for some of them; and — most directly — a US-detached worker holding a certificate of coverage under the US–Australia social security agreement, which removes the employer's SG obligation outright.

That matters because the usual advice — hold something else — is not available. The question is not whether to have super. It is what position to take on it.

Three readings, and none of them is obviously right

Note which Article 18 argument is actually live. Paragraph (1) — the ordinary pensions rule — is foreclosed for a US citizen: Article 1(3) lets each state tax its own citizens as if the convention had not entered into force, and Article 1(4)'s list of exceptions names only paragraphs (2) and (6) of Article 18. The ATO reads it the same way. What remains is the much narrower paragraph (2) argument that super is an "other public pension paid by" Australia — difficult, because super is paid by a private trustee rather than by the Commonwealth, and if it succeeded it would exempt distributions rather than defer accrual.

The Canadian comparison people reach for does not transfer either. What deferred the RRSP was Article XVIII(7) of the US–Canada convention — an actual treaty provision — which Rev. Proc. 2014-55 merely made automatic. The 1982 Australian convention has no analogue to it. There is no equivalent provision to invoke, which is why this stays a characterisation argument rather than a treaty election.

The 15% that does not travel

Australia taxes concessional contributions and fund earnings at 15% inside the fund. That is a genuine tax, but it is levied on the FUND — so where the US treats contributions or earnings as currently taxable to you, the tax already paid on them was, on the face of it, paid by someone else, which is the difficulty IRC §901 creates. Note that this cuts less cleanly than it looks: if the grantor-trust reading is the right one, you are the US owner of the interest, and Treas. Reg. §1.901-2(f) attributes tax imposed on an entity that is transparent for US purposes to its owner. The characterisation question therefore decides the credit question too, which is one more reason not to answer it casually.

Division 293 is different, and the desk should not skip it. Where your Division 293 income exceeds A$250,000, an additional 15% on concessional contributions is assessed on YOU personally — your own notice of assessment, payable directly or through a release authority. That is Australian tax paid by the taxpayer, so its creditability is a separate and better-founded question than the fund-level 15%. For the high-earning expat this page is largely written for, it is the super-related Australian tax most likely to be creditable.

And what is inside it

A super balance is invested — in the fund's balanced or growth option, in managed investments, or in a self-managed fund's own holdings. Those are pooled vehicles, which raises a Form 8621 question on the same facts, unless the characterisation adopted shelters the income inside the wrapper.

• Industry and retail funds. The investment options are pooled; unlisted property and infrastructure holdings inside them are the usual PFIC candidates.
• SMSFs. A self-managed fund is its own analysis — the trust question is sharper, and the underlying holdings are visible rather than aggregated.
• Reporting. The fund is generally a foreign financial account for the FBAR ($10,000 aggregate, measured worldwide) and may count toward Form 8938.

How to approach it

1. Get the member statement and identify the fund type — industry, retail, or self-managed.
2. List the investment options and, for an SMSF, the underlying holdings.
3. Separate employer (Superannuation Guarantee) contributions from salary-sacrifice and personal contributions — the characterisations treat them differently.
4. Note your role in the fund: a trustee of an SMSF is in a different position from a member of an industry fund.
5. Take the characterisation question to a credentialed adviser BEFORE filing, because the position taken in year one shapes every year after it.
6. Report the account on the FBAR and check Form 8938 regardless of which reading is adopted.