It’s not ‘… a matter for them to pursue with the US’!

Back in 2014, we met with our federal MP who sent a letter on our behalf to the Assistant Treasurer asking about taxation of our superannuation accounts by the US. This is an extract of the response we received from then Acting Assistant Treasurer, Matthias Cormann:

Letter dated July 2014 from Acting Assistant Treasurer
Letter dated July 2014 from Acting Assistant Treasurer

I have a problem with this response.

While I agree that Australia cannot change US law, the taxation of Australian residents by a foreign government is governed by the tax treaty between the Australia and that government (in this case, the US). This treaty is a bilateral (not unilateral) agreement – and Australia should have just as much say in the content of the treaty as the US.

Australia has agreed to a tax treaty that does not protect Australian citizens and residents from US taxation on superannuation. This is a matter that we should take up with the Australian government.

In the second paragraph he states that Treasury is aware of the issue and will raise it when revision of the treaty is next considered. While I understand that it takes both countries to negotiate a new treaty, I would expect that the Australian government would identify this issue as a priority and that they should be pressing the US to come to the table as soon as practical. The letter shows absolutely no recognition of any urgency to address this problem.

Superannuation has been part of the Australian financial landscape since 1992. The tax treaty was last amended in 2001. Why wasn’t superannuation addressed then? Perhaps because the US wasn’t, at that time, recognising “foreign” tax-deferred retirement plans in its tax treaties? Starting with the 2006 US Model Tax Treaty, the US began recognising the tax-deferred status of “foreign” retirement plans. You would think, given the prominence of super in Australia, that the Australian government would have started asking for a treaty amendment as soon as they became “aware” of the 2006 Model Treaty. Now, in 2016, they are 10 years late to the party.

So, it’s not ‘… a matter for them to pursue with the US’! The issues of US taxation of superannuation and the US practice of CBT are not issues for us individually to raise with the US, they are issues for the Australian Government to raise with the US in the context of urgent renegotiation of the tax treaty between the two countries.

5 thoughts on “It’s not ‘… a matter for them to pursue with the US’!”

  1. The tax treaty is Australian law. Yes there is a bilateral nature of it. Yet while the Australian government likes to focus on US law, we should call the tax treaty Australian law along with the FATCA IGA and focus on the impacts of these Australian laws on Australian soil. We should highlight Australian politician responsibilities in regards to Australian laws and not to leave it to a foreign country.

    This response from Cormann sounds very similar to the response (JD) received from Scott Morrison. We may highlight that both Morrison and Cormann’s replies shows greater respect for US Extraterritorial tax and compliance law than for Australian sovereignty and citizenship. We might make them a little uncomfortable. Perhaps they are blinded by US exceptionalism. Let them respond to that.

    I think that our letters need to anticipate such a response. We might suggest that the tax treaty never had proper parliamentary review and that it has been assumed as an “all good agreement.” Yet while the premise of the treaty is to prevent double taxation, it falls short and may guarantee double taxation, on Australian source income and assets (for Australian residents) such as on superannuation. We should ask for a Parliamentary Inquiry.

    I have called it all tax treaty malpractice. However, if one wishes to engage the assistance of the Australian government, and to land a meeting with one’s MP to discuss the issues, it needs to be in a respectful manner.

    I see double taxation on superannuation just as a hook to gain attention. We need to ask for lots more: blanket exemptions on US extraterritorial tax and compliance laws. And as part of this we might ask for answers to some questions as listed on the homepage of this site: what is the Australian domestic policy objective of permitting US taxation on superannuation?

    1. Internationally there has been lots of focus on the injustices of US extraterritorial tax on “accidentals” – those who have just been in the US a short time such as their first few years or even just for birth as in some parts of Canada a US hospital was closest.

      Many of such people don’t have a US passport, no US social security number, don’t identify as American, and in some countries these people don’t even speak English. US ties of these people have been called “tenuous.”

      While we are focusing on superannuation, it would be good to have a story or two about Australians who are “accidental Americans,” and the Australian government unjust treatment of them under Australian law treating them as US citizens living in Australia. The reality is that they are Australians who are US persons. In Canada (my influence from The Isaac Brock Society showing through) some even say Canadian citizens with clinging US nationality, or with US indicia (such as place of birth).

      In Canada there is a famous story of a mentally disabled US person, and because of their incapacity the US would not recognise this person’s renunciation, while special tax deferred accounts to save for looking after him get double taxed by the US. The person living in Canada receives no US government services to assist them.

      1. I would love to hear from any “Accidental American” that has been affected by FATCA here in Australia. Fill in the contact form on the About page if you don’t want to leave a public comment.

    2. I suspect the responses from Cormann and Morrison may have been written by Treasury staff (maybe even the same person). We need to rebut this presumption that Australia can’t do anything.

      Do you remember this post over on Isaac Brock: http://isaacbrocksociety.ca/2016/06/08/while-parliament-sleeps-tax-treaty-practice-in-canada/? I would love to know how much of Allison Christians’ paper also applies to Australia.

      I do think that superannuation is likely to be the issue that gets attention. And also the most likely to be fixed when they finally get around to negotiating a new treaty.

  2. In Australia questions were put to the Embassy and the Treasury

    As I understand it, and please correct me if I am wrong, in Australia the ATO can check income earned on accounts but not the balance for tax purposes.

    The biggest issue causing headaches – and prompting the record number of US Aus dual citizens to quit – is the confusion about the tax treatment of superannuation accrued by dual citizens.

    Does the government have any plans to review the treaty to address the inequity in the treatment of superannuation earned by dual American Australian citizens in Australia?

    Nothing from Embassy at all.
    Re Treasury

    Thank you for your enquiry.

    The FATCA regime requires the reporting of the bank account balance in addition to the gross amount of interest paid or credited to the account. This is required for US persons meaning those who are US citizens or are otherwise US tax residents. Australian financial institutions report this information to the ATO and the ATO exchanges this information with the IRS.

    Separately, Australia has a domestic investment income reporting system whereby investment bodies including banks report information to the ATO on residents and non-residents. This is the Annual investment income report (AIIR). Interest income received on the account is reported, but not the account balance or value.

    You may find our instructions on filing AIIR paper reports useful background (noting that most AIIR reports are lodged electronically with the ATO).https://www.ato.gov.au/uploadedFiles/Content/MEI/downloads/SBIT42589.pdf

    Commencement of tax treaty negotiations requires agreement from both nations’ governments.

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