Thursday, 10 July 2008

Super splitting part 2- Australian or overseas fund?

Super splitting- Australian or overseas fund?

Whether we like it or not, Australian courts can't split super in overseas superannuation funds. If a spouse has an overseas super fund, the two most obvious explanations are either that the member has previously worked overseas, eg the UK, or there is an element of tax planning.

If the former, and the amount is substantial, then it may be wise to obtain expert advice, as it may be possible to rollover super from the overseas fund into an equivalent Australian superannuation fund and then split it here.

Although it may be possible to rollover from overseas (and most of the time it is not), one of the matters to be considered is whether by rolling over into an Australian super fund crystallises a big tax debt. If so, is it wise to rollover? Again, expert advice may be required.

Yes, this sounds like an expensive exercise- but if it is possible to get overseas superannuation into an Australian superannuation fund and then to split it here, then it may be worth it.

Tax planning funds

Sometimes a spouse might have come up with the idea of "creating" an overseas super fund, for tax planning purposes. This might be in a tax haven, such as the Cayman Islands, Panama or the like, or even as close to home as New Zealand.

If a spouse has taken such a move, the first step is to- get advice! The matters to be considered are:
- does the fund really exist? This might sound like a stupid question, but it's one to be considered. Many years ago I acted for a property developer who each month paid principal and interest on a loan to an overseas company. The books of account showed that,as did all the paperwork. However, he fessed up that it was all a fiction- there was no overseas company, and all the paperwork was created for a tax dodge.
-if the fund exists, are there impenetrable barriers of paper that makes it hard to agree with Tom Cruise: "Show me the money!" Again, the answer is- get advice.
- while the overseas super fund was created to minimise tax, its creation might have been to create a tax problem, potentially a big tax problem! The tax problem might be much larger than the super fund is worth. Again, get expert advice, preferably from a forensic accountant.

What if the overseas super fund can't be touched?

For a variety of reasons, it may be that the fund can't be touched. Its existence is not ignored. As part of step 1 of the property process, its value still needs to be determined, and it is taken into account as a financial resource of that party.

What that means, ultimately, is that while the overseas super fund isn't part of the property pool, the court can say that the member spouse has an interest in that fund.There would then be an adjustment in favour of the other spouse under step 3 of the property process, ie under section 75(2) of the Family Law Act.

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