I am a 70-year-old dual Australian/Irish passport holder and have lived and worked in Australia most of my working life. While working in Australia I accumulated €300,000 in my superannuation account for my retirement.
I paid tax on my “super” contributions going into the account and since I have reached retirement age the balance in my super account can be withdrawn however I like tax free. I do not have any entitlement to an Australian or Irish pension.
I intend retiring back to Ireland before Christmas and am wondering how the Irish tax authorities will treat my Australian super balance when I transfer it to Ireland.
Mr P.D.
Welcome home is probably the first thing to say. Taxation and pension income can be a complicated issue, especially when you are working across national boundaries.
Your situation is complicated by the fact that you appear to be liquidating your foreign pension fund rather than simply drawing an income from it. And, of course, as you say, you are not entitled to a state pension either in Australia or in Ireland – at least for now.
That makes things tricky as your super fund is, as of now, likely to be your only income and you could live for another 15 years on the basis of current longevity stats. That money needs to stretch pretty far.
Australia operates a twin-track pension system. The most well known element here is the super, the occupational superannuation scheme that works along the lines of our incoming auto-enrolment scheme though the rules are slightly different.
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Once you hit 18 and are working, your employer is obliged to put a portion of your earnings into a super for you. Since July, that has risen to 12 per cent though it will have been lower through your working life.
The worker can also contribute to the super fund, with money they put into the fund subject to a “concessional” tax rate of 15 per cent – a rate that also applies to profits within the pension fund.
That compares with general income tax rates that run from 16 to 45 per cent depending on your income.
As with Ireland’s My Future Fund which comes into force next year, unless you indicate otherwise, your money will be invested in a balanced fund. The super will also provide some element of insurance cover to protect against illness or injury that keeps you from work.
Alongside this, the Australian government provides an age-related pension. However, this “age pension” is means tested with limits both on your income and assets.
As with the Irish means test, there is a threshold below which you can get a full non-contributory pension and another above which you get no pension. In between those figures, any pension would be reduced.
While the age pension can be paid to people who move abroad from Australia, you say that, in your case, you will not meet the criteria for this pension. And as you have not worked in Ireland for most of your life, you certainly will not qualify for a contributory state pension here.
That leaves you with the super.
Coming home
In Australia, once you are over the age of 65, you can withdraw from your super without limit and without tax. That could be by way of regular payments or drawing down lump sums – up to and including the whole fund if that is what you choose to do.
But that’s if you stay in Australia. Once you come home, you have to contend with Irish tax legislation and how the Irish tax authorities treat pension income.
The rules here are reasonably straightforward. Employee contributions to an Irish pension are exempt from income tax (up to certain fairly generous limits). When you retire, you can draw down a quarter of your fund up to a maximum amount of €200,000 free of any tax.
After that, you pay income tax at the lower 20 per cent rate on additional lump sums of between €200,001 and €500,000, and the higher 40 per cent income tax rate on anything beyond that.
Lump sums aside, any money drawn down from your pension in regular payments will be subject to income tax and universal social charge - a separate income tax brought in during the last economic crash.
[ How do I claim back my superannuation from Australia?Opens in new window ]
But what about income from your Australian super? Revenue were wary of being definitive when I spoke to them.
They note that anyone resident in Ireland for tax purposes is liable for tax on their worldwide income. They also say that if the payment was considered a pension, it would be chargeable to Irish income tax and universal social charge (USC) – an additional income tax brought in during the financial crisis.
However, as always, there are exemptions to the broad-based rules – in this case in relation to certain foreign pensions.
According to Revenue’s Tax and Duty Manual, which guides its approach to taxation, “Section 200 of the Taxes Consolidation Act (TCA) 1997 provides for a tax exemption for certain foreign occupational and social security pensions.
“Where these pensions are disregarded for income tax purposes in the hands of a resident of the country of source, they are also disregarded for income tax purposes in this State, provided the country of source has a similar income tax system to Ireland,” the tax and duty manual says.
Australia does have an income tax system that operates broadly in the same fashion as the Irish one. And your super payments would be tax-free if taken by you in Australia.
[ Making the most of tax relief available on pension contributionsOpens in new window ]
On that basis, they would appear to be exempt from Irish income tax and USC – whether you take the whole thing as a lump sum or draw it down in regular payments.
It might be no harm, given the sums involved, to get formal advice from an Irish accountant familiar with people returning home from Australia but it does seem fairly clear from that Revenue guidance.
Remember, if taking the lump sum and investing it here – or lodging it to a bank account – any interest or investment gain would be liable to tax. So you might want to consider whether it makes sense – apart from any lump sum you need to get you set up here – to leave the money in your super and draw it down as you need it.
If you live long enough for your pension fund to more or less disappear, you will be able to apply in Ireland for a means-tested non-contributory pension of up to €278 at today’s values as you will, by that stage, be habitually resident here.
A further point to consider is your health cover. While you will have Medicare cover living in Australia, that will disappear five years after you leave the country.
Ireland operates a twin-track healthcare system. There is free access to the care from the Health Service Executive for Irish tax residents although waiting lists can be an issue. Anyone over the age of 70 is also entitled to free GP care.
Then there is private health insurance, which can be costly, especially for someone coming late to the system, like yourself. Unless you sign up to private insurance within nine months of arriving home, you will be hit with a lifetime community rating loading which would increase your premium by 72 per cent at the age of 70.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice
