Australian Superannuation and Israeli Tax: A Full Guide

An Australian planning years in Israel usually asks the super question the wrong way round. The worry is whether the money is stuck in Australia. It is not; superannuation is portable and follows you anywhere. The real question, the one that decides how much of it you keep, is what Israel does to your super once you are living there, and the honest answer is that it depends entirely on one thing: whether Israel considers you a resident.

Get the residency picture right and an Australian can move to Israel and pay little or no Israeli tax on a super pension for a decade. Get it wrong, or ignore the day the ten-year clock stops, and a comfortable retirement income can meet an Israeli tax bill nobody planned for. This guide walks through the three residency states an Australian moves between, the two relief mechanisms Israeli law provides, and the treaty that sits over the whole arrangement. It assumes you are doing this from Australia, or splitting your time, and have not yet handed your whole tax life to Israel.

For the wider financial and visa picture of the move itself, our guide to retiring in Israel for Australians is the companion to this one. Here we go deep on the super.

The Australian side comes first

Nothing Israel does matters until the money can actually come out, and that is governed by Australian rules, not Israeli ones.

Super is preserved until you satisfy a condition of release. For most people that means reaching your preservation age, which is 60 for anyone born after 30 June 1964, and retiring, or simply turning 65. Living in Israel does not change that test and does not force you to cash out. Once you are eligible, your fund can pay an account-based pension or a lump sum, and it can direct the payment to an overseas or Israeli bank account, though many retirees keep an Australian account to receive the pension and transfer funds across as needed.

The Australian tax treatment on the way out is usually favourable. For a person aged 60 or over drawing from a taxed fund, the benefit is generally tax-free in Australia, and it remains tax-free when paid to someone who has become a non-resident. The exceptions are worth naming: an untaxed element (common in older public-sector funds), some defined-benefit pensions, and government service pensions are each treated differently, and a defined-benefit income stream can carry Australian tax even for the over-60s. Your fund's components decide this, so confirm them with the fund and the ATO before you assume the pension arrives clean.

Three residency states, three different answers

Israel taxes people, not accounts, and it taxes them according to residence. An Australian retiree typically passes through three positions, and the super is taxed differently in each.

You remain an Israeli non-resident. If your centre of life stays in Australia and you are only visiting Israel, even for long stretches, Section 4A of the Income Tax Ordinance 1961 taxes you on Israeli-source income only. Australian superannuation is foreign-source, so Israel does not tax it at all. The risk here is silent: repeated long stays can tip you into Israeli residency under the centre-of-life and day-count tests without any deliberate decision on your part, and our note on the Israeli 183-day residency rule explains how easily that line is crossed.

You make aliyah and become a new immigrant (oleh). This is the golden decade. A new immigrant enjoys a ten-year exemption on foreign-source income and gains, which covers a foreign pension. For ten years from the date you become an Israeli resident, your Australian super is exempt from Israeli tax, whether you draw it as a pension or a lump sum, and it does not even have to be reported in Israel during much of that period.

The ten-year window closes. This is the moment planning exists for. Once the exemption ends, a foreign work pension becomes taxable in Israel, but the law softens the blow, as set out below.

In Practice: Under Section 14(a) of the Income Tax Ordinance 1961, a new immigrant (oleh) is exempt from Israeli tax on all foreign-source income, including an Australian superannuation pension, for ten years from the date of becoming an Israeli resident, and the Israel Tax Authority (Rashut HaMasim) does not require most of that income to be reported during the exemption. A returning veteran resident (toshav chozer vatik) who lived abroad at least ten years receives the same ten-year benefit. The single most valuable planning point is calendar-based: the exemption ends on a fixed date, and drawing a large lump sum before that date rather than after can be the difference between zero Israeli tax and up to 47 per cent plus a 3 per cent surtax on the taxable portion, worth well over NIS 100,000 on a substantial withdrawal.

What happens after ten years: Section 9A

Australians often assume that when the exemption ends, their super is suddenly taxed at Israeli marginal rates, which reach 47 per cent plus a 3 per cent surtax. That is not how it works for a genuine pension.

Section 9A of the Income Tax Ordinance is a dedicated relief for foreign work pensions, and it gives the recipient a choice. The first option is a flat 35 per cent exemption on the pension, so only 65 per cent is taxed, at ordinary rates. The second, and often better, option caps the Israeli tax on the pension at the amount of tax you would have paid on it in the country that pays it. Because a taxed-fund super pension to an over-60 is tax-free in Australia, that cap can reduce the Israeli tax on it to a very small figure, sometimes to nothing, for the portion that would have been Australian-tax-free.

This relief is not automatic. It is claimed, and the Israel Tax Authority provides a specific instrument for fixing your rights under Section 9A.

In Practice: Under Section 9A of the Income Tax Ordinance 1961, once the ten-year exemption ends an individual receiving a foreign pension may elect either a 35 per cent exemption on the pension or a ceiling limiting the Israeli tax to what would have been payable in the source country. The election is made to the Israel Tax Authority using Form 161D (Application for Fixation of Rights under Section 9A), and once fixed it governs the annual return (Form 1301, due 30 April). For an Australian whose taxed-fund pension was tax-free in Australia, the source-country cap can bring the Israeli tax close to zero on that element, which is why the calculation should be run in year nine, not discovered in year eleven.

The treaty over the top

Sitting above the domestic rules is the Convention between Australia and Israel for the elimination of double taxation, which entered into force on 6 December 2019 and applies in Israel from 1 January 2020 and in Australia from 1 July 2020.

For ordinary pension income the treaty follows the standard pattern in its pensions article (Article 18): pensions are taxable only in the country where the recipient is resident. So for an Australian who has become an Israeli resident, the treaty assigns the taxing right over an ordinary super pension to Israel, and Israel then applies its own relief under Sections 14 and 9A. Where a residual Australian claim exists, the treaty requires relief by credit so the same income is not taxed twice.

Lump sums are the carve-out to watch. Lump-sum payments from a superannuation or retirement fund can remain taxable in the source country, Australia, in defined situations, rather than only in the country of residence. Government service pensions have their own rule and are generally taxed only in the paying country unless you are both a resident and a national of the other. The practical lesson is that a pension stream and a lump-sum withdrawal are not interchangeable for tax purposes, and the treaty treats them differently.

Common Mistake: Treating "my super is tax-free" as a permanent fact after moving to Israel. It is tax-free while you are a non-resident, and tax-free during the oleh ten-year window, but a foreign pension drawn in year eleven with no Section 9A election and no planning can land in the Israeli tax net at ordinary rates. The costliest version of this mistake is cashing out a large lump sum just after the exemption ends instead of just before it, and losing an exemption that Section 14 would have covered in full. The fix is a calendar and a calculation in year nine, coordinated between your Australian adviser and an Israeli tax lawyer.

SMSFs, National Insurance, and the parts that catch people out

Two further issues sit outside the pension-tax question and trip up Australians repeatedly.

If your super is in a self-managed fund, moving to Israel is not a neutral event for the fund itself. An SMSF has to keep its central management and control ordinarily in Australia and satisfy an active-member test to remain a complying Australian superannuation fund. A trustee-member who becomes an Israeli resident can breach both, and a fund that loses its complying status faces heavy Australian penalty taxation. If you run an SMSF, the residency of the trustees has to be solved in Australia before you go, whether by appointing an Australian resident trustee, using an enduring power of attorney arrangement, or restructuring. The related question of whether your SMSF can hold Israeli property is a separate one with its own answer.

The second issue is Israeli National Insurance. Once you become an Israeli resident you enter the National Insurance (Bituach Leumi) and health-tax system, and you join a health fund (kupat holim) for medical cover, because Australian Medicare does not follow you to Israel and there is no reciprocal health care agreement between the two countries. Critically, there is also no social security agreement between Australia and Israel, so your Australian contributions do not count toward anything in Israel and give you no offset. Pension income has its own National Insurance treatment, which is generally lighter than the treatment of earned income, but it should be confirmed for your circumstances rather than assumed.

Doing this from Australia

Because the whole outcome turns on when you become an Israeli resident and when the exemption ends, the planning has to happen before the move, from Australia, not once you have landed.

Fix your aliyah or arrival date deliberately, because it starts the ten-year clock and it is the anchor for every later decision about when to draw a lump sum. Get your fund's tax components confirmed by the fund and the ATO while you still have easy access to them. If you run an SMSF, solve its residency in Australia first. And set up the coordination between an Australian adviser and an Israeli tax lawyer at the outset, since neither professional alone sees both halves of the picture, and the Section 9A election and the treaty credit only work when the two sides are aligned. Where the money will ultimately land in an Israeli account, expect the receiving bank to run source-of-funds checks on a large pension transfer, which are routine but need the paperwork ready.

Practical Checklist

• Confirm your fund's tax components (taxed vs untaxed element, defined benefit, government scheme) with the fund and the ATO before leaving Australia
• Fix your Israeli arrival or aliyah date deliberately; it starts the ten-year exemption clock
• During the oleh window, time any large lump-sum withdrawal to fall inside the ten years, not after
• Diary the date the exemption ends and run the Section 9A calculation in year nine
• File Form 161D to fix your Section 9A rights before the first taxable pension year
• If you hold an SMSF, resolve the fund's Australian residency and complying status before you move
• Coordinate an Australian adviser with an Israeli tax lawyer, and claim the treaty credit where both countries have a claim

Speak With an Israeli Attorney

Australian superannuation and Israeli tax only work together when someone is watching both sides of the border and both ends of the ten-year clock. An Israeli tax attorney can confirm your Israeli residency position, plan the timing of your drawdowns around the Section 14 exemption, file the Section 9A election that caps your Israeli tax, and align the whole plan with your Australian adviser and the treaty.

Contact us for a confidential initial consultation.