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Forward Thinking Magazine : August 2010
18 Macquarie Adviser Services The FAF rules are expected to apply to a significantly narrower range of foreign entities than the former FIF rules. It appears the proposed FAF rules will be unlikely to apply where a benefit has been accumulated for retirement purposes in a foreign entity as a result of an overseas employment arrangement. Cross-border transfer advice Providing advice on potential cross border transactions presents a number of difficulties for Australian licensed financial advisers. It will generally be prudent to involve a suitably qualified and licensed adviser with expertise in the foreign jurisdiction in the provision of any advice regarding foreign pension/superannuation interests. However, the Australian adviser has a very valuable role to play in advising the client on the Australian superannuation and taxation implications of any decision to transfer, or not. The checklist opposite, although not intended to be exhaustive, may provide a helpful guide to distinguishing the issues to be addressed on both sides of a potential cross-border retirement savings transfer. FIF and FAF rules The operation of the former foreign investment fund (FIF) rules was a significant deterrent to continuing to hold an interest in a foreign superannuation/pension scheme in some cases, generally where either the small investor ($50,000) or employer sponsored superannuation fund exemptions did not apply. The Government has repealed the FIF rules, effective from 1 July 2010. It has proposed to replace the FIF rules with foreign accumulation fund (FAF) rules, which are also proposed to be effective from 1 July 2010, but were yet to be introduced to Parliament at the time of writing. The proposed new rules prescribe that a FAF is a foreign resident entity which is non-distributing and holds “low level of risk” investments. The proposed FAF rules will allow the Commissioner to include a “tax deferral benefit” in assessable income where: a non-excluded investor has an interest in a FAF, the investor obtains a tax deferral benefit, and the investor entered into the scheme for the sole or dominant purpose of obtaining a tax deferral benefit. In summary An understanding of the taxing points and tax concessionality of foreign retirement income model is a useful starting point, but more in-depth analysis will generally be required when a client is seeking specific advice. Although it is prudent to seek advice from a specialist in the foreign jurisdiction, Australian advisers have a significant role to play in advising on the Australian taxation, superannuation and general financial planning related issues.