As indicated in my last post, the Australian Treasury is seeking submissions on priorities for updating Australia’s tax treaty network. Fix the Tax Treaty! has made a submission. This post explains what you can do to help.Continue reading “Treasury Submission”
Treasury Tax Treaty Consultation
The Australian Treasury is currently asking for submissions on updating Australia’s tax treaty network. Submissions are due 31 October 2021. Fix the Tax Treaty has posted a draft of our submission in our Facebook Group. Comments and feedback are welcome. Everyone is encouraged to make a submission of their own as well.
So, how do Foreign Tax Credits work???
There’s a lot of confusion about how foreign tax credits (FTCs) work when computing US tax liability. Questions about FTC come up regularly in our Facebook group, so it’s time to publish a quick primer that covers the basic concepts of FTC computation. Note that this post is necessarily a simplification of what is a very complex topic.Continue reading “So, how do Foreign Tax Credits work???”
What good is it to have a destination if you don’t know how to get there? With this truism in mind, Let’s Fix the Tax Treaty! has long formally documented out strategy and action plans and made this document available to our membership at fixthetaxtreaty.org for public reference, comments and feedback.
However, this plan, last updated in 2018, badly needed an update. Importantly, we wanted to refresh and update our 2021 action plans and objectives / scorecard. So in the 2nd half of 2020 we launched a Strategy Refocus exercise, running a number of Focus Groups from our membership to get feedback and input on our strategy, priorities and action plans.
We’ve taken this input on board and refreshed our Strategy Roadmap document, including 2021 objectives and action plans.
Our Strategy Roadmap serves a number of important purposes, as it documents
- The taxation challenges we face
- Our purpose
- How our group is structured and governed
- The strategy framework, including
- what needs to change (note there is a useful comprehensive table in this section listing all known tax treaty issues),
- advocacy priorities, and
- who needs to implement these changes (targets) or might assist (influencers)
- Key messaging themes for those seeking change
- Our annual objectives (scorecard) and actions plans
Despite the considerable FTT group growth (our Facebook group is nearly 1300 members now!) and the growing realisation and interest in our huge taxation challenges, only a small team of volunteers on the Steering Committee (Karen Alpert, Christine Burk Roberts and Carl Greenstreet) currently drive these activities forward. By necessity, we have to be realistic as to the scale of our advocacy activities.
In 2021, we hope to be more outward in our advocacy efforts and we are planning two campaigns that will require wide support by our membership if they are to be successful.
- FATCA Post-Implementation Review (PIR) rebuttal campaign (February launch)
- Superannuation / investment portability campaign (2nd Half, 2021)
We will be detailing these further in due course but, for now, there is further information in the Strategy Document.
I encourage all members to take the time to read this important document as it may help you comprehensively understand the taxation challenges we face as well as how we might go about affecting positive change. Feedback is extremely welcome and please consider getting involved as a volunteer!
 Blog References: Plan to Succeed (Oct 2016), Strategy Roadmap (Dec 2016), Strategy Document Feedback (Jan 2017) and Plan to Succeed (Part II) – Strategy Roadmap & Action Plan (Jul 2017)
Focus and simplicity…once you get there, you can move mountains.
— Steve Jobs —
Fix the Tax Treaty! (FTT) advocates for the Australian Government to renegotiate the underpinning legacy Australia-US tax treaties and intergovernmental agreements to provide a fair go for all Australians.
Sure, our group also provides other services like educating our members on US-Australian taxation issues and pitfalls, providing a wiki-style knowledge base and maintaining a private forum where members can seek advice and share experiences.
Nevertheless, our core purpose is all about effecting positive change here in Australia. As a grass-roots volunteer organisation, FTT seeks to
- find solutions to the many adverse impacts resulting from the US practices of citizenship-based taxation,
- target its efforts in our home country of Australia, and
- provide a vehicle for organised collective action.
Our group membership has grown to over 1,200 members in only four years and we are proud to provide help to those in need. However, group administration demands have increasingly occupied our small Steering Committee leaving little time to actually pursue our core change agenda. You may not be aware but our group has long had a strategy roadmap, albeit several years old and in need of updating.
To address this, we are attempting to refocus our strategy and develop an achievable forward action plan. Any initiatives must focus on key issues, emphasise greater group involvement and leverage the strengths of our membership.
What better way to start this process than to seek input and feedback directly from our group membership? As such, we recently ran four focus group sessions (via Zoom VC) with volunteers from our group – huge thanks to those members who took the time to meet with us and contribute!
The purpose of these focus groups was to:
- double check to see if we are focusing on the right issues and seek to prioritise them
- get membership ideas on how we might approach the change process, and
- solicit input on how we might translate this into an action plan.
You can view the introductory slides used at the Focus Groups at the end of this blog.
Pleasingly, we weren’t blindsided by any of the discussion content, with most of the key issues already recognised by the Steering Committee and previously documented in our initial strategy roadmap, blog posts, etc.
To summarise the focus group outcomes, I’ve grouped the outcomes into themes below with a brief discussion synopsis:
- Top-3 “Pain” Issues
- Double taxation of retirement accounts (Super, but also ATO taxation of US retirement accounts)
- Taxation on sale of personal residence
- Investments taxation restrictions (PFICs)
What was particularly helpful was prioritising the key taxation issues to those few critical issues that impact most of our membership. The number one issue was clearly the taxation of retirement accounts, where current taxation laws results in double taxation while preventing expatriates from fully taking advantage of their country of residence’s retirement savings incentives. In short, there is a huge need to reform both US and Australian taxation treatment of retirement accounts in order to provide retirement account portability, facilitate labour mobility and minimise economic leakage.
Similarly, US taxation on the sale of personal residences in Australia becomes a major issue as high housing costs force Australian residents to tie up a large proportion of their savings in their home with the expectation that these illiquid savings can be “unlocked” during retirement through downsizing or other mechanisms such as reverse mortgages, home equity lines of credit, etc.
Finally, the investment opportunities available to Australian residents are severely limited by US taxation laws such as PFIC legislation and regulations that punitively tax a wide variety of common non-US investments.
- Focus & simplicity
- Prioritisation required
- Wrap up in over-arching themes; eg economic advantages of retirement portability / labour mobility
- Focus on messages that will resonate with our elected representatives
- Simple messaging formats;
- Provide appropriate level of supporting analysis but avoid analysis paralysis
All focus groups were strongly of the view that in order to be more effective, we need prioritisation, increased focus and simplicity in our efforts. Framing our requests into over-arching themes such as “effective labour mobility” and “retirement portability” is recommended. Importantly, we need to focus on justification that will resonate with the key decisions makers, our elected representatives. For example, we should aim to educate politicians that these changes will actually provide economic opportunities as Australia recovers from the COVID-19 recession.
Messaging needs to be simple and direct; Infographics were recommended as an effective communication tool for both politicians and media. Of course, some level of supporting analysis may be required to provide important quantification such as economic metrics, but this does not and should not be exhaustive or hugely time consuming as we need to avoid analysis paralysis.
- Develop and conduct sustained campaigns on key issues
Focus groups all agreed on the need to develop clear, ongoing and sustained campaigns on key issues. Specifics however are challenging with no group consensus emerging. Further work will certainly be required in this area.
- Seek to identify develop key alliances with political and Industry groups
Focus groups also recognised the need for alliances that would share our objectives and ideally have greater resources and lobbying connections. Further work is required but potential allies could be State and Industry Development Groups, Australian Super or Investment organisations, etc.
So what comes next? We’ll be updating our Strategy Roadmap and seeking to develop action plans and sustained campaigns around these simplified and prioritised objectives. If you missed the focus groups, it’s not too late to provide input into our revised strategy – just drop Karen (email@example.com) or me (firstname.lastname@example.org) an email with your thoughts. We are particularly interested in thoughts around how we might conduct effective campaigns on our key issues (Item 3 in the themes summary).
As always, “many hands make light work.” To bring about positive change, we must leverage our group as a volunteer resource. Please get involved!
FG Introductory slides:
US Taxation of US retirement account distributions to NRAs
In my last blog post I discussed how Australia taxes distributions from US retirement accounts. But that’s only half of the picture because the US may also tax these distributions. For US citizens, the US tax treatment is clear and well known. But, what if you’re not a US citizen (or green card holder) when you withdraw your US retirement savings?
These issues were the subject of a series of three podcasts I recorded with John Richardson last week (links below). The purpose of this post is to summarise the key points covered in those podcasts.Continue reading “US Taxation of US retirement account distributions to NRAs”
How does Australia tax your US retirement account?
For those who have moved between the US and Australia, access to and tax treatment of retirement accounts is a common issue. We’ve covered the US taxation of superannuation in several posts, but the tax treatment by both countries of 401k and IRA accounts held in the US is also important. Today’s post will cover the Australian side of this equation. My next post will discuss what happens to your US retirement accounts when you renounce US citizenship (or for Australian expats returning from the US).Continue reading “How does Australia tax your US retirement account?”
FEIE vs FTC – The Basics
This morning I participated in two short podcasts hosted by John Richardson covering the basics of the Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC). Keith Redmond, Laura Snyder and Suzanne Herman also participated.
We discussed persistent myth that these two US tax provisions “fix” the problems that arise due to the US practice of taxing the residents of other countries under the fiction that all US citizens are US tax residents.
Each of these podcasts is a short 15-minute introduction to the complexities surrounding US tax compliance for non-resident US citizens.
Edited to add:
Here’s the third podcast we recorded today – it discusses more of the interplay between US tax and your local tax system.
To renounce or retain US citizenship?
Several of us participated in a conversation today about the issues that must be considered when deciding how to deal with the extraterritorial impact of US citizenship based taxation. For those who are just realising that the US requires ALL citizens to comply with US tax obligations, we discussed the various considerations that come into play when deciding how (or whether) to comply. We also discussed the issues that must be considered when deciding whether it is time to renounce US citizenship. As with many momentous life decisions, there is no one-size-fits-all prescription – US citizenship and tax compliance are individual decisions that will depend on personal circumstances, country of residence, future plans, and personal temperament.
The conversation, hosted by John Richardson, included Keith Redmond, Laura Snyder, David Johnstone and Karen Alpert. It is available here:
There has been much speculation among American expat groups about how the recently passed US tax rebates / stimulus will impact Americans living outside of the United States. After all, the US claims the right to tax based on citizenship rather than residence – so shouldn’t the US provide tax rebates based on citizenship as well? As you will see in this post, the complexity introduced by taxing non-residents is not well understood, even by the tax writing committees in Congress. There appear to be some unintended consequences in this bill – though for once, some of these consequences benefit rather than harm non-resident US citizens. All the more reason for US tax rules to stop at the border – like every other country, the US should tax on the basis of residence and source, not citizenship.
Many Americans abroad have non-American spouses. While most will file their US taxes as “Married Filing Separate”, many find it advantageous to take advantage of the election available under §6013 (g) to file a joint return with their nonresident alien spouse. Making this election means that the spouse agrees to be taxed by the US on their worldwide income. Certainly, that ought to be sufficient to qualify for the $1200 stimulus payment as a US taxpayer? But no, the §6013(g) election treats the spouse as a US tax resident for the purpose of computing tax, but not for the stimulus payment.
Another issue that I haven’t seen any analysis on is the interaction of this credit with the Foreign Earned Income Exclusion (FEIE). My take is that, since the FEIE reduces Adjusted Gross Income (AGI), and the CARES Act rebate is phased out at higher levels of AGI, taking the FEIE would increase the amount of CARES Act rebate. Someone earning more than US$75,000 can exclude foreign earned income, reducing AGI below US$75,0000. I haven’t seen any analysis of this, but if I am correct, then I’m sure this is an unintended consequence – but an example of an unintended consequence that actually favours expats.
US expats will also have to consider how this payment will be treated by the tax authorities where they live. This may vary country to country. Some countries may treat this as a tax credit, reducing any US tax available as a credit against local country income taxes, while others may treat it as taxable income. Best to consult a qualified tax adviser where you live.
The bottom line is that the US government should be taking care of the US economy – not the economies of the countries where US citizens happen to live. US tax rules should stop at the US border – for both tax liability and for tax benefits. And, for those who have been sitting on the fence, worrying about whether they should start complying with US tax law when they are a tax resident of another country, the stimulus payment will barely cover their compliance costs – and certainly won’t cover their losses going forward due to both compliance costs and the cost of opportunities lost.
From my earlier post on Facebook:
President Trump has now signed the CARES Act, and there is much speculation on how this impacts tax-compliant US expats.
I’ve had a quick read of the relevant portion of the legislation and here’s how it works in a nutshell:
The bill creates a new refundable credit for 2020 tax returns with an advance refund of that credit now (or as soon as the IRS can implement it). This means that eligible taxpayers will receive a refund now from the IRS, then on their 2020 tax return they show the credit reduced by the payment they receive now. The credit is available to US citizens and residents with social security numbers and does not appear to be contingent on having any taxable income.
The amount sent out now is based on the numbers in your 2019 tax return (or 2018 if 2019 hasn’t been filed). Those collecting Social Security who do not have a US tax filing obligation will also receive payments based on the amounts shown on Form SSA-1099.
If your income in 2020 qualifies you for a larger credit than what you receive this year, then you get the additional amount when you file the 2020 return. If your income in 2020 qualifies you for a smaller credit than what you receive now, then the net credit you show on the 2020 return is zero (not negative) – that is, you don’t have to pay back the excess.
So – if you’re not currently in the US tax system, what does this mean for you? The amount of the rebate may be just enough to pay for filing under the streamlined program – but once you file, you are in the system and continued compliance will add costs (not just compliance costs, but the opportunity costs of not being able to invest or save in the same ways as other Aussies). If you’re a temporary expat – planning on returning to the US in future – then this may present a good opportunity to come into compliance. If you’re a permanent expat, then you should be very wary of entering into the US tax system, even with the promised tax credit.