In the Facebook group last week, someone claimed that only the very wealthy are disadvantaged by the dual tax obligations imposed on US citizens and green card holders living in Australia. Certainly, for an Australian resident with only salary income, it is likely that foreign tax credits (FTC) or the Foreign Earned Income Exclusion (FEIE) will completely eliminate any US tax liability. However, for anyone who is considering investing for the future or running their own business, there are many pitfalls and traps in US tax law that need to be carefully considered. It seems like almost anything “foreign” is treated punitively by US tax law, and these xenophobic rules make it difficult for middle class US taxpayers to save effectively while living outside the US.
Over the next few weeks, I will be covering the following areas where US taxpayers living in Australia need to be particularly careful:
- Real Estate
- Australian Managed Funds
- Australian Shares
- Business Ownership Structures
- Investing in the US
This series (and everything on this website) is general information only. I am not a lawyer, tax professional, or financial planner, just someone who has learned about US tax and wants to pass on general knowledge. Many areas of tax law are interdependent, so changes in one area may have unintended consequences in another. You should consult a professional who can consider your own personal circumstances before taking any action. Continue reading “How do US Tax Rules Constrain the Investment Choices of US Taxpayers Living in Australia?”
From 1 July 2017, Australian financial institutions will be required to report account information of anyone with a tax residence outside of Australia to the ATO under the OECD’s Common Reporting Standard (CRS). Once the United States rolled out FATCA, countries in the OECD decided that cross-border reporting of financial accounts might be a good way to rein in use of tax havens for tax evasion. However, while the two are similar, there are some differences. The key features of CRS are a common standard for: the scope of reporting (type of information, which account holders and which institutions), the due diligence required, format of the data to be exchanged.
With the current push for FATCA repeal, and the recent Hearing on The Unintended Consequences of FATCA, CRS is mentioned by some as a possible substitute for FATCA. Unfortunately, there seem to be a few misconceptions about the differences between the two Automated Exchange of Information (AEOI) schemes. As implemented in Australia, CRS is perfectly compatible with Citizenship Based Taxation.
While it is exceedingly unlikely that the U.S. Congress will ever sign on to CRS, it is important for those who advocate CRS as a more “benign” alternative to be clear on exactly what CRS entails.
This article covers:
- How is CRS being implemented in Australia?
- Who must report?
- Who and what must be reported?
- Reciprocity – FATCA vs CRS
- Penalties – FATCA vs CRS
- Implications for US Persons
Continue reading “CRS – Coming soon to a bank near you…”
Have you opened a bank or investment account lately? Were you asked about other citizenships? Place of birth? Since mid-2014 Australian financial institutions have been ferreting out US Persons. At most institutions, every new account holder is asked these questions. And, if you are found to be a US Person, you must complete a form W-9 (or equivalent) disclosing your US connection and Social Security Number. This data will be sent to the ATO, who will forward it on to the IRS.
Think about that.
Private Australian financial information of Australian citizens and permanent residents is being sent to a foreign government.
How can they do that? Do they really have the authority to send private financial data to the IRS?
Continue reading “How can they do that?”
Just over a week ago, I received a message through this website from someone who had submitted an FOI request to the ATO. “Sam” expected that one of his accounts had been reported because the bank had identified him as a US Person and the balance was above the bank’s reporting threshold. The response from the ATO puzzled Sam, and it puzzled me as well. The ATO response stated that they needed to consult with a “foreign government” about whether Sam’s FATCA records were exempt from FOI under Section 33 of the FOI Act: Continue reading “FOI Take 2”
This is Part 3 of our series explaining the Saving Clause in the Australia / US tax treaty. In Part 1 we saw how international tax works for 90% of the world’s population: income sourced in the country where you live is taxed only by that country. Income from elsewhere is governed by the treaty and generally taxed by the source country – with a tax credit in the resident country if it is also taxed there. In Part 2 we saw how the Saving Clause works in US tax treaties: US citizens are subject to US tax wherever they live due to the unique practice of Citizenship Based Taxation; the Saving Clause allows the US tax its citizens as if most of the treaty did not exist, allowing the US to tax foreign-source income of foreign residents. Continue reading “Explaining the Saving Clause III”
This is part 2 of a three part series explaining how the Saving Clause works in international tax treaties. In part 1, we saw how international transactions are taxed for almost 90% of the world’s population under Residence Based Taxation (RBT). We looked at the example of Maria, an Australian resident with rental income in Santiago Chile. Maria pays tax to Chile on the rental income, but is not required to report or pay tax in Chile on any of her Australian income. On her Australian tax return, Maria reports the Chilean rental income and is able to deduct the tax paid in Chile from her Australian tax. Essentially, Chile has the first right to tax Chilean source income. Continue reading “Explaining the Saving Clause II”
When it comes to fixing the tax treaty, the “Saving Clause” is a key piece of the puzzle. From the discussion that followed the Strategy Roadmap, it is clear that many find the saving clause very confusing. So, in a series of three posts, I’m going to attempt to explain how the saving clause works and why it is important. In this first post we’ll look at how international tax works under the Residence Based Taxation model used by three quarters of the taxing jurisdictions in the world and covering almost 90% of world population, without the saving clause. The second post will look at how the saving clause, coupled with Citizenship Based Taxation changes the result. In a nutshell, we’ll see that the saving clause allows the US to tax US citizens living in Australia on their Australian source income. The final post will explore ways to fix the problem. Continue reading “Explaining the Saving Clause I”
“Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”
― Abraham Lincoln
While it may seem like there’s very little activity here, we have been busy behind the scenes. The Steering Committee (myself, Carl Greenstreet, and Caroline Day), have been working on articulating our strategy. We have a very rough draft of our initial strategy roadmap that we are now releasing for comment. There are still many holes to fill – the table of contents shows an outline of where we’re heading.
Previous blog entries have discussed our overall vision. Carl’s Plan to Succeed post foreshadowed much of the structure of the current document. In Priorities I outlined several main goals which have been incorporated here. And in One Step at a Time I talked a bit about the long time horizon that may be necessary in our struggle. The governance section of the document comes mainly from my Steering Committee post. The Strategy Roadmap pulls all of this information into a single document.
This is a first draft. Your comments and suggestions are needed to assist with refining the current document and extending it. Getting the strategy right is an important first step. As the old proverb goes: “What’s the use of running if you’re not on the right road?” You can make comments here, on the Facebook group, or by completing the feedback form on the About page.
Comments will help us develop a coordinated action plan for 2017. We look forward to your feedback, and will be calling for assistance from everyone as our plans for 2017 take shape.
I’d like acknowledge Carl’s efforts in putting together the initial outline that became this first draft. Fleshing out his outline has been a group effort. If you are interested in joining the Steering Committee to help with further refinement of this document, please fill in the form here.
Download the document here: FTT Strategy Roadmap
On 29 November I submitted a Freedom of Information request to the ATO requesting copies of all data about my accounts that was sent to the IRS under FATCA. The fact that I had to ask is outrageous – account holders should be automatically notified when their data is sent overseas. But, current Australian privacy law does not require any notification. Continue reading “FOI Request”