CRS – Coming soon to a bank near you…

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:

  1. How is CRS being implemented in Australia?
  2. Who must report?
  3. Who and what must be reported?
  4. Reciprocity – FATCA vs CRS
  5. Penalties – FATCA vs CRS
  6. Implications for US Persons

Continue reading “CRS – Coming soon to a bank near you…”

Explaining the Saving Clause III

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[1]: 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”

Explaining the Saving Clause II

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”

Strategy Document Feedback

Just before Christmas, Karen released our initial Steering Committee work on the group strategy for your feedback through the blog comments, our Facebook Group or Private Message.   Perhaps the timing was not the best given how frenetic things get for most of us over the holiday season? Continue reading “Strategy Document Feedback”

Explaining the Saving Clause I

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”

Strategy Roadmap – Rough Draft

“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

When Tax Professionals Disagree

Walter B. Wriston (former CEO of Citicorp): “All the Congress, all the accountants and tax lawyers, all the judges, and a convention of wizards all cannot tell for sure what the income tax law says.”

Applying US tax law to “foreign” legal structures is problematic.1 This is one of the great frustrations of trying to comply with the US system of citizenship based taxation (and one of the reasons why this extraterritorial application of US law should be carefully considered by all countries who negotiate tax treaties with the US). Inevitably there will be differences of opinion as to how US law applies to particular foreign income or taxes – and these differences will lead to different US tax treatment of the same or similar items. There may be no single “right” answer, and we (or the tax professional we have hired) will have to choose how to interpret US tax law to determine our US tax liability on our foreign (home) income. Understanding how our local law meshes with the structures defined in the US tax code is the first step.

In Australia, we have two advantages relative to much of the rest of the world (especially those which are not part of the Commonwealth). First, our laws are written in English. While there are several Aussie colloquialisms that differ in meaning from American English, our laws and other formal writing are written in language that is mostly the same as US English (with a few extra vowels here and there, and the occasional “zed” that has been replaced by an “s”). Second, our legal system is derived from the British system, so many of the underlying principles are at least similar between the two countries. Even so, there are differences.

Continue reading “When Tax Professionals Disagree”

Transparency

In my last post, one of the priorities listed was more transparency in FATCA reporting. What I meant was that everyone should have the right to know what is being reported about them to the ATO/IRS by their local (foreign to the US) financial institution, and the right to correct any errors in that information. Continue reading “Transparency”

Strength in Numbers

Many Hands Make Light Work
Old English Proverb

United we stand, divided we fall
Aesop

There is always strength in numbers.  The more individuals or organisations that you can rally to your cause, the better
Mark Shields

All for One and One for All!
Motto from the Three Musketeeers, by Alexandre Dumas

I not only use all the brains I have, but all I can borrow
Woodrow Wilson

Alone we can do so little; together we can do so much
Helen Keller

With an estimated 200,000 persons of American origin living within Australia, one would think that the awareness would be greater of the significant threats imposed on them through the US Government’s harmful and unjust practices of extraterritorial taxation.   I’ve been baffled at how few actually understand the breadth of compliance expectations, costs and potential risks such reporting compliance penalties and double taxation but I also recognise that following years of minimal enforcement or education, many would have been able to stay blissfully ignorant of expectations imposed by a far far away country.

However, all this is changing now that the USG, with Australia’s full cooperation, has begun to enforce their extraterritorial Citizenship Based Taxation regime, aided and abetted by FATCA.  Stakeholders are starting to wake up to the material threats they face and are motivated to seek change.  This led to the recent formation of Let’s Fix the Tax Treaty! as an Australian focused advocacy group seeking to press the Australian Government for amendments to the Australia/US Tax Treaty and the FATCA IGA to eliminate discrimination against a subclass of Australian citizens that is also disadvantageous to all Australians

As a new, word-of-mouth grassroots initiative, it is pleasing to see that membership in our Facebook group has already reached over 125 members.  Nevertheless, current membership is a very small fraction of the impacted community and clearly our cause will be better served by greater membership representation.

Why does membership numbers matter?  Firstly, if we are seen to represent a large stakeholder group having aligned goals, we’ll have much greater creditability and a better opportunity to influence Australian policy and opinion makers.   Secondly, our advocacy group strategy (currently under development –look for blog posts on this soon) will flow onto specific activities that will require volunteer efforts to execute.  To successfully bring about change, we will all need to get involved.  Recently, a call went out for volunteers to serve on a Steering Committee (which remains open, hint, hint!) and there will be further calls for volunteer support as standing committees are formed to support targeted activities.   Thirdly, the more broad and diverse the skills and mindsets we can draw upon, the more successful our efforts are likely to be.

Who are the Stakeholders we need to attract?  Stakeholders consist of:

  • Australian residents of American origin, many of which are dual citizens;
  • Australian spouses of American citizens;
  • Australian citizens living in America who are now subject to US tax laws including potentially material (penalty) taxes on Superannuation and passive investments they established before moving to the US
  • Indirectly, all Australians who have to pay for FATCA systems, suffer money being unfairly diverted from their domestic economy into a foreign economy and tolerate a loss of Australian sovereignty as Australia domestic policies are undermined by a foreign power.

 

So if we accept that larger membership is desirable, what can we do about it?

  1. Spread the word to your network and ask them to do the same. Most of us know many impacted people so this is a great place to start.  To make this easier, I’ve previously posted a “model email” (look for it in the comments) that you are welcome to modify and personalise as your own.
  2. Let appropriate organisations know about our group. I’ll cross-post this in the a couple of relevant Facebook Groups I am a member of (Yanks Down Under and North American Expats in Adelaide and South Australia) please do this with other appropriate groups and please tell us about them in the comments.
  3. Media helps immensely. After the recent SMH article featuring our very own leader Karen Alpert, we saw a sharp uptick in FB membership requests and visits to our blog site.  We’ll be formally working the media angle further as the Steering Committee and group strategy gets rolled out but perhaps some of you already have connections or ideas here?  Please tell us about it in the comments.
  4. Finally, we are happy to take other ideas in the comments.

I think we should be targeting to grow this group to the 2,000 to 5,000 persons size, which seems to me both a reasonable and achievable target.  Of course, we recognise that numbers for numbers sake is not what we are here for and we will soon table an advocacy strategy and corresponding activity plan for your input and feedback.  Then it will be time to get involved!  Look for my next post soon on the benefits of having a well thought-out advocacy strategy.