Preventing Pension Double Taxation: The Treatment of Australian Superannuation Guarantee under the Existing Australia-US Tax Treaty

Dual Australian-US taxpayers face increasing concern about the United States (US) tax treatment of superannuation. Australian law requires all employers to contribute to complying superannuation funds on behalf of their employees as part of their retirement savings program. This mandatory contribution is tax advantaged in Australia, but proper characterisation of the contribution for US tax reporting is unclear. If the US taxes superannuation contributions as though they are current income rather than untaxable retirement savings, it significantly stunts the efficiency of Australia's retirement savings system, by either overtaxing superannuation investment or preventing dually affected citizens from confidently investing in superannuation. This article argues that the Australian Government has a vested interest in clarifying that, under a fair reading of the Australian-US tax treaty, contributions into superannuation are not taxable as individual income under US law. Without clarification, the Australian Government unnecessarily bears the financial burden of Australian retirees who are subject to both US and Australian tax systems and fail to fully fund their retirement.