An Australian superannuation fund is a partly compulsory pension program put in place by the Government of Australia. The employer contribution rate has been 9.5% since 1 July 2014, and as of 2015, was planned to increase gradually from 2021 to 12% in 2025.
An individual can withdraw funds from a superannuation fund on meeting a condition of release, such as retirement, terminal medical condition, or permanent incapacity.
Classification of Australian supers for U.S. tax purposes
An Australian superannuation is a hybrid plan with no clean U.S. analogue. It has characteristics of both a social security program and a private pension.
Contributions to Australian superannuation funds are treated as social security contributions under the U.S.–Australia totalization agreement. Participation is compulsory. However, a super is not a public fund; it is privately managed.
The IRS has not provided much guidance on this hybrid plan. Most practitioners treat supers as private pensions.
A few take the position that they are social security funds and exclude super earnings and distributions from U.S. taxation entirely, relying on Article 18(2) of the U.S.-Australia income tax treaty:
Social Security payments and other public pensions paid by one of the Contracting States to an individual who is a resident of the other Contracting State or a citizen of the United States shall be taxable only in the first-mentioned State.
And Article 1 section 3 excepts the Savings Clause from Article 18, which otherwise would’ve subjected social security plans to U.S. tax.
To take this treaty position on Australian supers is likely incorrect because Australian superannuation funds are not social security or public pensions:
- Australia has a system of social welfare payments provided by the Government of Australia. Article 18 it specifically states that the payment must be “paid by one of the Contracting States.” Superannuation funds are privately managed and are not paid directly by the Government of Australia, although it could be argued that Australian employers are acting as agents of the Government of Australia (quite a stretch).
- The IRS has provided guidance on the tax treatment of similar funds such as the Singapore Central Provident Fund, which the IRS treats as a nonexempt employees’ trust.
[W]e have concluded that the Fund is a nonexempt employees’ trust described in § 402(b). It appears that contributions to the Fund generally are made as a uniform percentage of salary for the vast majority of each employer’s employees.
- In a PLR 200604023, the IRS concluded that “Under the Treaty, the payment to Taxpayer from an Australian superannuation fund is subject to U.S. tax.”
The most common position is that employer-sponsored super are nonexempt employees’ trust under §402(b), and a self-managed super fund (SMSF) as a foreign grantor trust with the member being both the contributor and controller.
Is the growth in a superannuation taxable in the U.S.?
It depends on the plan and whether it’s considered a foreign grantor trust or an employees trust.
An employer-sponsored super is generally a nonexempt employees’ trust under Section 402(b).
- Employer contributions: taxable at vesting (which for supers means current year inclusion)
- Employee contributions: taxable as wages
- Fund earnings: generally not taxed until distribution – except that under Section 402(b)(4)(A), where the trust fails the coverage requirements of Section 410(b), a highly compensated employee* must include the annual increase in the vested accrued benefit in income each year.
*Section 414(q) defines a highly compensated employee as one who was a 5-percent owner at any time during the year or the preceding year, or who for the preceding year had compensation from the employer above a statutory threshold and, if the employer so elects, was in the top-paid group of employees for that year. The statute states $80,000, but the figure is indexed under Section 415(d) and is $160,000 for 2026.
Self-managed super funds are usually treated as grantor trusts, because every member must be a trustee or a director of the corporate trustee. Control comes from the structure, not from who funded the balance. Where the rules apply, the member reports the fund’s earnings currently.
How are Australian supers taxed on distributions in the U.S.?
Upon distribution, funds are taxable in the U.S. under Section 72 to the extent that distributions exceed basis.
Required international information reporting forms
If the fund is a grantor trust (such as a SMSF), it may require Form 3520, 3520-A, Form 8621, FBAR, and Form 8938.
As a non-grantor trust, only Form 8938 and FBAR are usually required. There may be rare cases where Form 3520 could be required but most practitioners will seek to exclude it under Rev. Proc. 2020-17.
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