Temporary Transition Tax Reprieve

The IRS has extended the deadline to pay the transition tax for individual taxpayers whose tax residence is outside the US (see section 3.06(e) starting on page 35 of this notice). For those who own Australian corporations and have been filing form 5471, this is good news. It gives you two additional months to decide whether to comply with this law.

The extension is the direct result of the petition campaign spearheaded by Monte Silver from Israel. It indicates that the Treasury and Congress will listen if sufficient force is applied (at the height of the campaign, 50 petitions per day were being sent to Congress and the Treasury).

An extension of time to pay is only the first step. There will be continued lobbying for a legislative solution to exempt non-resident individuals from this tax. This is in addition to recent moves towards legislation to exempt non-resident citizens from tax on non-US income.

The transition tax confiscates the undistributed earnings of non-US corporations just because the owner is a US citizen or permanent resident. Where the owner is a resident of Australia, this means that the US is taxing capital that is part of Australia’s tax base – and getting there before the ATO. When the earnings are finally distributed (as a dividend), tax will also be paid in Australia, possibly resulting in double taxation. Meanwhile, the money spent to pay the IRS (and to pay the compliance professionals needed to compute the tax liability) will no longer be circulating in the Australian economy.

Citizenship matters – Take 2

Here we go again… another Australian politician, Deputy PM Barnaby Joycehas had his eligibility to sit in Parliament challenged based on claims he is a dual citizen!

John Richardson explains why the Australia should NOT allow foreign laws to dictate who can or cannot be a member of Australia’s Parliament. Where an individual has made no claim to citizenship and has not consented to become a citizen, must Australia recognise citizenship granted by a foreign country?

The Australian constitution was written in an era when dual citizenship was rare. Over the past few decades, dual citizenship has become almost common. With many countries granting citizenship by descent, it has become possible to be a citizen without any knowledge of that fact. In the past few weeks, it appears that Australian politicians have virtually weaponised citizenship.

Today’s Australian includes a list of MPs who may have citizenship problems, with leaders of both major parties threatening to refer members from the other side of the aisle to the High Court on this issue.

Citizenship was weaponised in another context when the Australian government agreed to sign an Intergovernmental Agreement (IGA) with the US over FATCA. There will be many Australians, born in Australia (or elsewhere outside the US) with a qualifying US-citizen parent, who may never have been registered as a US citizen, or who were registered as a minor without their consent. The US government considers them citizens, but, if they have never consented to that citizenship, should they be considered US citizens by their Australian bank? A High Court ruling that Barnaby Joyce or Matthew Canavan need not be considered dual citizens under Australian law could be useful for those that the US considers citizens who either have not consented to that citizenship or who believe they relinquished their US citizenship long ago, but do not have a US Certificate of Loss of Nationality.