Australian citizens and residents who are also taxable by the US are subject to double taxation that is not prevented by the Australia/US Tax treaty. In fact, the treaty guarantees unfair taxation by the US of some Australian source income, including superannuation. While the cause of this double taxation is the US practice of taxing based on citizenship rather than residence, the effect on Australian citizens and residents can be mitigated by updating the current tax treaty.

Double taxation stems from the mis-match between Australian tax law and the 74,000+ pages of US tax law and regulations. Those subject to both sets of tax law will pay the higher of the two tax rates on each type of income. To make things worse, US tax law treats many “foreign” investments as suspect and deserving of punitive taxation; for a US Person living in Australia, all of their local investments are “foreign” to the US.

The US has taxed based on citizenship rather than residence since the Civil War. However, until recently this was neither well communicated to US expatriates nor enforced. In 2014, Australia signed an inter-governmental agreement with the US, the FATCA IGA. Under this agreement, Australian banks must now hunt out US Persons and report their financial information to the ATO for transmission to the IRS.

The Australian government is one of two parties to both the Tax Treaty and the FATCA IGA. Those impacted by the inadequate coverage of these agreements are Australians living in Australia. The Australian government has an obligation to protect its citizens. In particular, the following areas need attention:

  • Superannuation: Australia legislated mandatory retirement savings for employees with the Superannuation Guarantee (Administration) Act (1992) and the Superannuation Industry (Supervision) Act (1993). Unfortunately, the US does not recognise superannuation as a qualified tax-deferred retirement plan. While the US tax rules in this area are complex, the US will generally tax contributions and either current income inside super or a portion of withdrawals from super. The 2016 US Model Tax Treaty includes provisions under which the US will respect the tax deferral in super for Australian residents as well as for US residents who previously accumulated superannuation in Australia.
  • Saving Clause: All US tax treaties include a “saving clause” that allows the US to tax US citizens as if the treaty did not exist (with the exception of a limited number of treaty provisions). The problems with this clause are discussed in this post by John Richardson at
  • PFICs (Passive Foreign Investment Companies): Australian managed funds, listed investment companies (LICs), real estate investment companies (A-REITs), and exchange traded funds (ETFs) are all treated as PFICs for US taxpayers. PFIC treatment results in punitive taxation of these investment vehicles. Part of the rationale behind this punitive treatment is to prevent US taxpayers from using “foreign” investments to defer taxable income. But, any of these investments that is registered for sale to retail investors will be required by Australian law to distribute all income and realised gains currently, just like the American equivalent. The treaty should include a clause that states that Australian investment structures that are sold to retail investors are not to be considered “foreign corporations” under the PFIC rules.
  • NIIT (Net Investment Income Tax): Enacted as part of Obamacare, NIIT is a flat 3.8% tax on investment income for US taxpayers whose income exceeds a threshold determined by filing status. NIIT applies to all investment income, regardless of source, and cannot be offset by foreign tax credits. For those affected, this is a clear case of double taxation.

The end result of these deficiencies in the current treaty is that any Australian citizen or resident that is also taxed by the US (as a citizen or green-card holder) will end up paying tax to the US on their Australian superannuation, and will also find it difficult to effectively invest outside of super. These problems will affect middle class Australians more than high net worth Australians because a) the most effective investment vehicles for small savers are exactly those classified as PFICs and b) they are less able to afford the tax advice and compliance services needed to effectively plan for living under two very different tax regimes.

See “Investing with One Hand Tied Behind Your Back – An Australian Perspective on US Tax Rules for Non-resident Citizens” by Karen Alpert for more detail.

FATCA IGA: Under the IGA, the US agreed to provide reciprocal information. Article 10 of the IGA states that the parties will consult on the progress toward implementation of the IGA prior to 31 December 2016. This deadline in the IGA provides the Australian government a window of opportunity to re-examine the agreement to ascertain whether the US is actually providing the data promised in Article 6. Towards this end, the Australian government should disclose more information about the data sent TO the IRS in September 2015 and information about what NEW data has been received FROM the IRS under the FATCA IGA.

Citizenship Based Taxation: While the focus of this site is on actions the Australian government can take to protect its sovereignty and tax base, see the US Action page for updates on the fight against Citizenship Based Taxation in the US.

41 thoughts on “Problem”

  1. Great effort, Karen, on putting this site together and showing leadership to organise an effort to bring about positive change on behalf of the ~100,000 people of American origin that now live within Australia and are caught up in double taxation and numerous tax traps between the US and Australian systems.

    I’m a naturalised Australian citizen. I’ve worked and saved toward a self funded retirement in Australia for approaching three decades yet my journey towards being self funded (as opposed to taking a taxpayer supported government pension) is continually frustrated. Some examples:

    • my Superannuation does not enjoy the same tax advantages as other Australians;

    • I’m prohibited from investing in legitimate investment funds within Australia under threat of confiscatory tax by the US (PFICs) and now recently, through Australia’s enabling of FATCA through the inter-government agreement (IGA) have been denied financial services offered to other Australians;

    • I will not receive the full Australian tax concessions on a recent redundancy payment I received from a company that I had worked for the past 20 years as the US does not recognise the Australian tax policy and treats the redundancy as general income to be taxed as my marginal rate basically allowing the US to siphon off this much needed tax savings;

    • I’m effectively denied the use of many legitimate legal instruments such as trusts, SMSFs, corporations, etc. through excessive, complex and costly US tax rules and compliance reporting;

    • I’m double taxed in numerous ways despit the current tax treaty which one would think has the purpose to prevent this injustice; this is a major irony given Australia is a higher tax country, yet all the tax I pay within my country of residence is not fully recognised by the US;

    • I face ongoing complex and costly compliance requirements to a country that I have not lived in for decades.

    • I cannot afford to renounce my US citizenship due to the imposition of a financially material exit tax that keeps me hostage to another country’s tax policy.

    This leads to the unfair situation where all Australian citizens are not treated equally and Australian domestic policies are undermined through actions of foreign governments. Why should my citizenship be second class to other Australians? Australians should be outraged at this discrimination and that funds which legitimately should remain within the Australian economy are being extracted by a foreign government.

    Many, including some Australian politicians, say US law taxes their citizens on a worldwide basis so this issue is something to be taken up by the dual citizen with the US government. I disagree. The impact of foreign laws within Australia violates Australia sovereignty and undermines Australian domestic policy. By analogy, do US gun laws allow me to arm myself within Australia?

    This clear discrimination between Australians is something that needs to be addressed here in Australia through democratic processes and our elected government representatives. Australia is my home; it is right that we work to bring about change within the country we work, pay taxes and live.

    So I commend Karen for taking the first step to organise Australians to bring about much needed change. This effort will only be successful if affected stakeholders work together to bring about much needed change.

    Don’t forget we also have a Facebook group. Please join and get involved!!

    1. Thanks for sharing your story, Carl.

      I was in a similar situation, but was fortunate to learn of the exit tax before I had saved enough to be subject to it. I renounced in June 2016 so that I could enjoy the same savings vehicles and tax benefits as other Australians.

      Dual Australian/US citizens are truly second-class Australians.

    2. My Australian-born, Australian-resident, Australian citizen daughter received a Christmas letter from her Australian bank to say she would now have to pay American tax. She is still a student, working part-time to support her studies and still hoping to get a job paying enough to start repaying her Australian HECS debt. Unfortunately for her, I registered her to have duel citizenship when she was born. What a horrible nightmare. Any wonder she is sobbing, and sees her life as completely changed.
      I, on the other hand, am still working in my own small business (after 45 years working in Australia, as a duel citizen) at age 68. I have resisted going onto the Australian pension, even though my taxable income this year was only $14,000. I can live on that, UNLESS the American government makes me pay them tax, or even if they force me to spend valuable work time filling out lengthy forms. What an astonishing situation, unfair to all.

      1. Hi Joyce. Take a deep breath. Take some time to do your research before rushing in to file US taxes. There’s a list of resources on this page: Before you even contact a tax professional, make sure that filing US taxes is really what you want to do. Once you enter the IRS system, the only way out is by renouncing.

        A bit of good news – under the current treaty the Age Pension can only be taxed by Australia. If you’re eligible for US Social Security, that can only be taxed by the US.

        And, yes, the situation is totally unfair.

      2. Joyce Sanders… there may be no need for your daughter’s sobbing. Sounds to me as if she may be able to possibly expatriate w/o undue US tax problems if she can attain 5 yrs of US tax compliance. As a student and w the possible Streamlined option she may be able to do this w/o tears. Read my US tax blog post here let me know if my firm can assist you. We have successfully handled many expatriation cases. Good luck.

    3. I am surprised that no one has mentioned the imposition of US Capital Gains tax on Australian homes when they are sold – own homes are exempt in Australia but not in the US.

  2. Am very glad to have found this site. Was put in touch with Karen by Julie Power after reading her article. I am a dual citizen that has been here for 25 years and recently had the experience of having the IRS tax Centrelink benefits I had received, which I found outrageous and made me concerned whether that would happen when I started drawing on my Superannuation. That’s when I read Julie’s article which lead me here.

    1. I’m glad you found us, Brian. The US taxation of Centrelink benefits (other than the Age Pension) is absolutely outrageous! I will add that to our list of changes that need to be made to the treaty.

      1. Hi Karen, I just discovered your site Thank you! The US tax system is a nightmare for our expat family to negotiate.

        I am a bit concerned about the above comments re US taxation of Centrelink benefits and was wondering if you can clarify further?

        I am in receipt of Family Tax Benefits and having checked with the IRS plus two tax agents in Australia with extensive US specific experience (recommended by the US Consulate), I was advised that Family Tax Benefits were definitely not taxable in the US. One of these tax agents actually has an ad on their website specifically referencing FTB as not taxable in the US! Perhaps unsurprisingly, the IRS and the two tax agents gave me a total of 3 separate reasons for this, one of which was actually based on the current treaty, so I am a somewhat confused now given your statement about US taxation of Centrelink benefits.

        I look forward to reading your response. Thanks again for the great work you are doing on behalf of us expats!


        1. Hi Bill,
          Thanks for your comments. I’m not familiar with Family Tax Benefit A or B, as they never applied to us (kids are long gone now). If your tax agent says they’re not taxable in the US, then that’s probably correct. Unemployment/NewStart benefits are, I believe, taxable by the US. Plus, the fact that this is not clearly spelled out anywhere is a real problem – the uncertainty drives people to pay exorbitant costs for tax preparation.

          1. Thanks for the reply, Karen. As you suggested, I will stick with the existing advice re this from the tax agents (and IRS). I agree that the lack of certainty is a major issue! All the best with your endeavours and I will keep an eye on your site to see how we can stay involved.

        2. Hi Bill,

          I am wondering if you can provide/post here more detail regarding FTB and (did you have information about CCB too?) that i can pass on to my tax agent so that he doesnt include this in my income? where to look etc?


  3. If I try to renounce my U.S. citizenship, but don’t have the money to pay to do it, I suppose either I can’t do it, or……….will they put me in prison, extradited from Australia, for not paying American tax? Would the U.S./Australian Tax Treaty allow for extradition from Australia for non-payment of tax? And if they didn’t extradite me, would they just ban me from ever coming to the U.S. to see my first grandchild due to be born in the U.S. in April of my dual citizenship daughter currently working in America? What an amazing evil they have set up in this tax law.

    1. If all of your income and assets are in Australia, the IRS will have a very hard time collecting any tax from you. And, you will not be extradited simply for failure to pay US tax. Every case I’ve seen of someone being extradited from Australia to the US has involved fraud or some other serious crime. If you’re tax compliant in Australia and all of your income is from Australia, then the ATO will not assist the IRS in collecting US tax from you.

      The IRS is not able to share information with other US agencies unless there’s a specific law requiring it. The IRS will tell the Department of State if you have a tax debt of more than USD50,000, and your US passport will be cancelled. Before it gets to that point, however, the IRS will have gone through it’s procedures to assess the tax, finalise the amount, and attempt collection. You would receive a letter from the IRS at each step of the way. If you haven’t been contacted by the IRS, then you almost certainly don’t have a finalised tax debt that the IRS would report. So, if the IRS has not contacted you, then you shouldn’t be denied entry into the US.

      As for renouncing your US citizenship – the cost of a certificate of loss of nationality is US$2,350. The consulate will not process a renunciation until you pay this fee. Take a look at these pages on the Isaac Brock website:

      and read through the information at

      Feel free to post questions here or on the Isaac Brock website (more people will answer your questions on Isaac Brock as their audience is worldwide).

  4. Thank you for creating this website – this is a cause which I strongly support. I’m an Australian citizen living in the US and am dismayed at the abusive treatment of Australian superannuation funds under US tax policy in comparison to other foreign retirement funds. I’m not particularly knowledgeable on taxation laws or international treaties but am more than willing to help push this forward in any way possible.

  5. i have no idea if the issues listed herein are relevant to me, but i found this searching online for a IRS problem. I’m an Australian Citizen with an investment in the US (LLC – pass-through entity – currently taking no income) I have filed form 8843 twice – both times citing tax treaty article 21 as reason for no tax liability in the US. I just got a letter from the IRS demanding $20,000! Reason given was ‘we can’t allow your tax treaty exemption’ I’m so confused – what has changed between 2015 and 2016 tax years!?

    1. Hi eoin,
      Glad you found us. It sounds like you need professional advice. I’m not aware of any changes to the treaty or its interpretation between 2015 and 2016. You’re an Australian citizen, but are you also a US tax-resident (resident, citizen or green card holder)? I’m not sure how Article 21 applies in the circumstances you’ve outlined, but Article 21 cannot be used by US tax-residents due to the Saving Clause.

  6. Thank you Karen for explaining the complications of the treaty and beyond in clear, easy to understand language. This website will help all of us caught in this tax nightmare. Reading the comments also sheds light on previously unknown aspects of these draconian tax laws.

    1. P Gorman,
      Glad you find the site useful and educational. Please let us know if you have questions or if anything is unclear.

  7. HI,
    I was following up on the original article in the Sydney Morning Herald which states the US is “Other than Eritrea, it is the only country in the world that taxes non-resident citizens – and even holders of a Green Card (alien resident permit) who are also living outside the USA – on their worldwide income, regardless of where it is earned or where they live.”
    Not so – Your home Country, Australia is even worse, as the marginal tax rates for similar income (top rate) is an additional ~>10% (39% vs 49%) for Australian citizens on worldwide income. Hence – it is more advantageous for dual residents to renounce their Australian citizenship than their US, (somewhat depending on where their “Super ” lies).
    Additionally, the ATO specifically excludes US-funded IRA’s and 401K’s from being treated as “SFS”, hence incurring the additional top-up tax.

    1. This is a common misperception. Many countries, including Australia, tax the worldwide income of residents. The US is the only country to tax the worldwide income of NONresidents using the same rules and tax schedules that apply to resident taxpayers. If you move away from Australia, then you no longer need to worry about Australian tax rules except for Australian source income (including any accumulated super).

      Australian citizens living in the US with no Australian source income have no Australian tax filing requirement. US citizens living in Australia with no US source income must still file US tax returns, and must limit how they invest in Australia to avoid PFICs and CFCs, and other arcane US tax provisions.

      1. Hi Karen,
        Thanks for your response, as I was not aware of this.
        If I am an Australian citizen and resident overseas (US), and I have Australian income (e.g.rental or super drawdown), do I have to include all worldwide income on Australian tax return?

        1. If you are not an Australian resident, then only Australian source income is taxable in Australia (citizenship is irrelevant). There has been a recent move to make the criteria for Australian tax residence a bit less subjective. If there’s any question about tax residence, or if you’re in the process of moving out of Australia, be sure to consult an Australian tax expert to make sure you’ve considered all the tax implications.

  8. Dear Karen
    I married a US citizen and got my GC about 4 years ago. An international tax expert advised us that as I had significant assets in Australia, it was better for me to give my GC earlier than later. That earlier for me is by end of 2017.
    We have the complexity of having to work out how our marriage is going to function with two partners living in 2 different countries and our time together. Part of it is being realistic and deciding if that is a viable option.
    I wanted to send you this link which is well documented by this young American who lives in Japan and the herculean gymnastics that he has to endure to try and fulfil his US tax obligations. It is truly heart wrenching and brings to crystal clarity what your group is working at so diligently. Bestest Wishes.
    [PDF]The tax issues for Americans living outside the US are many, varied …
    at an American university that was then operating a campus here for one school … again as a foreign exchange student at Meiji University for one calendar year.

    1. Thanks for the link. The compliance nightmare caused by US taxation of bona fide residents of other countries cannot be under estimated. I hope you’re able to come up with a solution that works for you.

  9. Hi Karen
    I hold dual Australian-US citizenship (born in USA). I have lived continuously in Australia since 1973 and became an Australian citizen in July 1994. My wife is Australian citizen by birth. I am a self-funded retire drawing on an allocated pension.
    HSBC Bank has approached me for information for FATCA.
    Having read some of the information on your pages I am getting quite stressed about the possible impact of US tax laws on myself and family.
    I am in Perth and wonder if you could suggest a way forward or recommend anyone who could help me here in Perth

    1. Hi Jim,
      I’m glad you found our site. If you’re on Facebook, join our FB group. It’s a closed group, so only members can see posts there. When you ask to join there will be three simple questions to answer – these help us limit membership to those with a personal interest in the topic.

      While the worst case scenario is very scary, you should carefully consider your options. Read the material linked here: For those with little or no remaining ties to the US, the risks might not be as bad as you think. Every situation is different, so it is important that you educate yourself so that you can make the best decisions for your own situation.

  10. I have found these posts quite interesting. The ones I have read are mainly from the IRS taxing Super Funds. We have just had the opposite – the ATO has taxed my husband on a withdrawal from his 401K which he contributed to while living in the US. So he was taxed by both IRS and ATO.

    1. Hi Kelly, my husband and I also own IRA accounts but we have not made any withdrawal yet. We are looking for an accountant to find out if we need to include any dividend and any capital gain/loss in our tax return to the ATO.
      Just wondering, did you have to pay a minimal tax to IRS like 30% and the difference to ATO?

  11. I was born in Australia to a US citizen mother. I’ve never been to the USA, but recently learned I qualify for US citizenship, having automatically acquired it at birth. I was keen to pursue that, until I came across this site today!

    I thought the US citizenship would be a nice thing to have, but would it? Would it be more trouble than it’s worth?

    Thanks for any thoughts.

    1. Welcome Mike – Like anything, the answer is “it depends”. Do you want to try to work in the US? Citizenship will allow you to move to the states without worrying about immigration issues. However, if you’re not actively using the benefits of citizenship, then it’s probably more hassle than it’s worth, especially if you have already established a financial life here in Australia. Your super and any managed fund investments could be a problem under current tax rules.

  12. Hi Karen,
    I hope that your group will undertake to lobby the Australian & US governments to fix the tax treaty both ways. I am an Australian with permanent residence in the US who plans to return to Australia when I retire.

    Here is my difficulty. I have built up a sizeable Roth IRA (individual retirement account) to use as an income source when I retire. Roth’s are special; because you fund them with after tax money, any capital gains and later, withdrawals/distributions in retirement, are tax free. Kind of like super.

    However, the Australian government doesn’t recognize these IRAs as similar to super funds, and I would be taxed on my withdrawals, as well as any capital gain my fund accumulates, after I return to Australia. Similar to the US government situation with Australian superannuation funds, but in reverse. I belive my Social Security retirement income would also be subject to taxation by the ATO.

    I implore you to add to your cause, this side of the equation, which is the Australian government’s (and hence the ATO’s) unfair policies towards US retirement accounts and Social Security income for Australian citizens who spent some of their working years in the US, and tgen return home. In retirement they are/will be subject to similar unfair taxation by the Australian govt on their US retirement accounts if they have returned to Australia to reside. Reforming the tax treaty should apply to both sides of the equation. Please help Australian citizens in this situation.

    1. Hi Margaret,
      Yes, the treaty definitely needs to be fixed to allow international mobility both of those in the labour force and retirees. Roth IRAs are a particular problem under the current treaty. Even if the US fixes the problem of taxing nonresident citizens, the treaty must be revised to account for portability of retirement savings between the two countries (in both directions).

      The good news for you is that the current treaty reserves taxing rights on Social Security (or Age Pension) to the source country. Only the US can tax US Social Security and only Australia can tax the Age Pension (and disability pensions). Under current rules, if you’re a US citizen and therefore remain a US tax resident after returning to Australia, your Social Security will be taxed at progressive rates under the same rules as apply to those living in the US. If you’re no longer a US citizen or US tax resident when you collect Social Security, the US will withhold tax at a flat rate of 25.5% and there will be no need to file a US tax return. If the rules remain as they are currently, you may end up paying less tax as a US citizen than as a nonresident alien.

      1. Hi Karen,
        That is another problem for me. The flat amount withheld from social security is now 3% I believe and I will need that money to afford to retire here. Do you know if I get that refunded back to me if I file a tax return with the IRS each year? It seems unfair because if I become a US citizen before coming back they will not withold anything from my social security retirement, nor will they if I retire in Ireland or the UK instead without becoming one. But they will withold 30% if I don’t become a US citizen and return to Australia.
        Also, if I don’t become a citizen, I will have to give them a proportion of my assets when I leave permanently, and then the Australian government will tax my Roth IRA disbursements which would be tax free in the US, and is essentially my superannuation. At the moment it seems advantageous to become a citizen in my case, so nothing is witheld from my social security retirement income and I don’t have to surrender some of my assets when I relocate back home to Australia. What do you think? Do you have any advice on who I could consult?
        Thank you,

          1. Hi Margaret,
            The 30% tax rate on social security benefits is applied to only 85% of your benefit for a net tax rate of 25.5%. This is a final tax liability if you’re not a US citizen – you are not able to file a tax return and get any refund. Under the tax treaty with Australia, the US has sole taxing rights for US social security (Australia cannot tax it too). Other countries have treaties that give the taxing right on social security to the resident country – in those countries you would not face the US withholding, but you would face progressive tax rates in your country of residence.

            For those whose retirement is mainly funded by US retirement savings (including social security), US citizenship and citizenship based taxation may actually result in a lower tax bill than being a nonresident alien.

            As for the Roth IRA – these are a problem for Australian residents for the reasons you mention. It may be worthwhile to withdraw the entire balance before becoming an Australian resident. Of course, you would need to run the numbers and consult a financial planner who is conversant in US and Australian tax and the interaction between them.

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