Welcome

Welcome to Let’s Fix the Australia/US Tax Treaty!

This site is a volunteer effort. We are not lawyers or tax professionals. Everything published on the site is based on our layperson’s understanding of the complex interaction between two sets of tax laws – an interaction that frequently leads to unjust results.

So, why are we here? Since the passage of FATCA in 2010, more and more US citizens living in Australia (and elsewhere outside the US) have been learning about their (previously unknown for many) obligation to pay US taxes on their worldwide income. Taxation of non-resident US citizens is not a new law; it dates from the US Civil War. But FATCA ushered in a new era of enforcement, with every bank on the planet being enlisted to identify US taxpayers and report them (directly or indirectly) to the IRS.

As the level of compliance by US expats rises, the inequity and injustice of the interaction between US tax rules and Australian tax rules has become more apparent.

There are two fronts on which we can fight these injustices:

  1. US domestic tax law must be changed to follow the international norm of taxing based on residence rather than citizenship.
  2. US treaty partners (including Australia) must protect the rights of their own citizens (many of them dual citizens) who are unfairly taxed by the US.

The battle on the first front has been raging for years. Two groups have raised money for US lawsuits, one challenging FATCA and the other challenging the practice of Citizenship Based Taxation (CBT).

The second front must be fought country by country (at least until there are a critical mass of countries questioning US extraterritorial taxation). There are currently efforts underway in Canada, France, Israel, and elsewhere.

The purpose of this site is twofold:

First, to encourage affected Australians to write to their elected representatives to lobby for change on the Australian side of this equation. Australia has signed two agreements with the US that allow this to continue: the Double Tax Agreement (Tax Treaty) and the FATCA IGA. The Tax Treaty was last amended in 2001 and does not provide for US recognition of the tax-advantaged status of superannuation. There are other portions of the treaty that guarantee the double taxation of dual citizens resident in Australia. Our Australian government must put pressure on the US to come to the table an re-negotiate the Tax Treaty.

Second, to serve as an educational resource for both the affected dual citizens trying to understand how the Tax Treaty affects them AND to help educate our elected representatives on the problems caused by Australia’s capitulation to one-sided US demands.

We expect this site to grow organically as dictated by the needs and desires of the participants. If you have any suggestions, please let us know in the comments or on the Ideas for content page or by email.

So, please join in the discussion and help us in our quest to Fix the Australia/US Tax Treaty!

2 thoughts on “Welcome”

  1. Can you comment on the view that Australian superannuation is a requirement of the State, i.e. federal government, and therefore qualifies as Privatised Social Security as it is compulsory? And therefore if true, under Article 18 (para 2) of the tax treaty, Australia Superannuation can only be taxed in the source country, i.e. Australia in this case.

  2. Welcome, Kerry.

    I have discussed the similarity of super and social security in this post:
    http://fixthetaxtreaty.org/2016/09/10/is-super-equiv-to-social-security/
    and followed up in this post:
    http://fixthetaxtreaty.org/2016/12/04/when-tax-professionals-disagree/

    While I am aware that there are some professionals preparing US returns using this theory – it is by no means settled. The IRS refuses to give any guidance on how they see super, though emails released under FOI in the US indicate that they lean towards treating super as a non-qualified plan, often under Sec 402(b).

    Some of the difficulties with using 18(2) from the treaty are that a) only the SG contribution is required, and many Australians have co-mingled their mandatory contributions with salary-sacrifice and non-concessional contributions; b) 18(2) speaks of pensions and not contributions or earnings inside super. Also, the intent of the parties when negotiating the treaty is important – is it possible that the Australian government intended the US to be able to negate a major part of domestic policy with respect to dual citizens living in Australia?

    Bottom line is that we need the IRS (possibly at the urging of the ATO) to make a ruling on how super is to be treated for US tax. The uncertainty must be resolved. In the event the IRS rules that super is taxable in the US, then this will provide impetus for urgent renegotiation of the treaty. Hopefully, given the pension provisions in the current US model treaty, the IRS will be willing to rule that super is not taxable on a US tax return.

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