The Australian government has abolished its punitive Foreign Investment Fund (FIF) regime that taxed permanent residents of Australia on the annual growth of certain foreign pension funds (including QROPS). Under the old rules, the annual fund growth was assessable to tax at an individual marginal rate to a maximum of 46.5%.
The Australian treasury originally announced plans to abolish the FIF regime back in May 2009. However, it is only recently that the draft replacement legislation has been published.
It is proposed that the FIF rules will be replaced with an ‘anti-roll-up’ regime, which is targeted at a very narrow type of foreign accumulation fund.
It appears from the draft legislation, that it will be possible for Australian residents to hold funds in certain overseas pension funds, without paying tax on the annual growth.
Income drawn from a foreign pension fund will generally be assessable to Australian tax, whilst income from an Australian Superannuation fund is tax free. Therefore individuals should still look at the possibility of transferring their funds to an Australian Superannuation Plan. Advice on whether a pension transfer to Australia is in client’s best interests may not be as clear cut as under the previous regime and factors such as the exchange rate, visa status and the individuals long term intentions need to be taken into consideration.