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
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.
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!
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
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!
Thanks to a follower of this site who has urged their MP to submit Questions in Writing about the Australia/US Tax Treaty and the impact of FATCA on Australian residents claimed by the US as “US Persons.” As I’ve written elsewhere, allowing the US to tax the Australian-source income of Australian residents drains money from the Australian economy. Even if the US tax liability is offset by credits for Australian tax paid, the cost of compliance and the constraints placed on financial planning are real.
Today, Rebekha Sharkie, MP for the electorate of Mayo in South Australia submitted the following question:
312 MS SHARKIE: To ask the Treasurer—
(1) Why was superannuation excluded from the 2001 revision of the USA-Australia tax treaty.
(2) Is it a fact that the 2001 revision of the treaty was focused on businesses rather than on individuals.
(3) Has the Treasurer received any advice on revising the treaty to address issues with taxation of superannuation; if so, can the Treasurer provide any such advice (or if not possible, can a summary of each advice be provided to the House).
(4) Is the Treasurer aware of changes in the past decade in US practices in the enforcement of the Foreign Account Tax Compliance Act as it applies to ‘US persons’ that are also residents of Australia for tax purposes, or Australian citizens that reside in Australia and are subject to Australian taxation.
(5) Has the Government been advised of any such changes by the US Government; if so, could the Treasurer provide the advices (or if not possible, can a summary be provided of each of these advices to the House).
(6) Has any such change in US practice increased the costs to Australian citizens and tax residents that are required to comply with US tax rules; and what is the estimated total cost of treaty and extra-territorial US tax compliance for Australian citizens and Australian tax residents over the forward estimates broken down by financial year.
(7) Under the treaty and related instruments: (a) under what circumstances would Australian citizens and tax residents be paying both US and Australian taxes (however arising); (b) can the Treasurer detail each of these circumstances; and (c) has the Treasurer received any advice concerning any of these circumstances, or concerning the potential or reality of double taxation under current treaty arrangements more generally; if so, can these advices be provided (or if not possible, can a summary of these advices be provided to the House).
(8) What is the number of: (a) Australian citizens; and (b) Australian tax residents; that pay US taxes on Australian income (however arising, including salary, superannuation contributions and distributions, home ownership, business ownership, and any other investments).
(9) Broken down by financial year over the forward estimates, what is the: (a) total cost from the treaty to Government revenue; and (b) total capital removed from Australian superannuation accounts and the Australian economy due to extra-territorial taxation by the US Government (including Australian superannuation contributions and distributions).
(10) What review and monitoring mechanisms does the Government have in place to identify issues arising out of the operation of the treaty.
(11) To date: (a) what concrete steps have been agreed to in order to resolve the issues identified in the US-Australia tax treaty; and (b) what are the deadlines for completing each of these steps.
(12) In tabular form, can a list be provided of the notifications (and a brief description of each individual notification) provided by the US and received by Australia pursuant to Article 2, Paragraph 2 of the treaty.
(13) Will the Government commit to a renegotiation of the treaty; if not, why not; if so, in which year does the Government: (a) expect to commence those negotiations; and (b) intend to conclude negotiations.
Any MP can direct Question in Writing to the appropriate Minister. There is no requirement that the question be answered, but it remains on the list of unanswered questions until it has been answered, withdrawn, or Parliament is dissolved. If a question is left unanswered for 60 days, then the MP who asked the question can ask why there is a delay.
I will be quite interested to hear how the Treasurer answers this question.
1 of this two-part blog, we reviewed our lengthy and largely
unsuccessful journey in exercising our Freedom of Information (FOI) rights to
better understand the context behind the current 2001 tax treaty and to use
this information to better frame our initiatives to improve this important
Although our FOI requests were
largely unsuccessful, we did gain some knowledge and insights along the
way. The purpose of Part 2 is to discuss
these learnings and suggest further activities we might consider.
Individual shareholders of US Controlled Foreign Corporations face a difficult deadline on 15 December. That’s the last date to file a timely 2017 tax return (assuming all possible extensions have been granted). For those who feel they must comply with the §965 transition tax, this is the last date to make an election to spread the tax over eight years. We have been covering this tax provision at Fix The Tax Treaty since before the Tax Reform legislation was passed (list of posts). Comprehensive coverage of the transition tax is available in a series of posts by John Richardson over at www.citizenshipsolutions.ca. For affected shareholders, the transition tax can destroy the nest egg they have built up over a long career. The purpose of this post is to consider how this injustice can be fixed.
Those of you who follow our blogs might recall we commenced a Freedom of Information (FOI) campaign with both the ATO and Treasury a full year ago to develop a deeper understanding around the issues we face with an intent to use this information to inform future policies and actions (see Behind the Curtain – FOI Requests, Nov 2017).
In practice, exercising our Freedom of Information rights became a much more involved, complex and time consuming process than initially envisioned. Along the way we learned a great deal about the FOI process and challenges in obtaining useful information. Although the information we obtained wasn’t the insightful contextual documents we had hoped for, we still gained some information and insights along the way.
I’ve split this blog into two parts to keep the length down
Part 1 – Challenges and pitfalls – Our journey through the FOI process
Part 2 – What did we learn and what steps might we consider next?
The transition tax is the provision in the tax reform bill that concerned us so much when it was introduced that we posted a Call to Action! In short, when applied to an Australian-resident US taxpayer, the transition tax asserts the right of the US to reach inside an Australian corporation and tax previously earned active business income just because a majority of the company is owned by “US Shareholders”. This is a major departure from prior law, and calendar-year taxpayers were given not much more than a week from the date the law was signed to the end of the tax year in which this new tax would be applied – certainly not enough time to understand the new law, let alone plan to avoid the inherent double taxation. Furthermore, in all of the hearings on the bill, not one Representative or Senator mentioned anything about the applicability of this provision to corporations owned by tax-residents of other countries, for whom the idea of “repatriating” profits to the U.S. is not only absurd, but also a drain on the economy of the country they call home.
While the 2014 FATCA information transfer to the IRS was widely reported, since then we have had no idea how much data has been flowing from the ATO to the IRS. To get a better idea of the scope of the data exchange, Carl sent an FOI request to the ATO for a summary of the data sent to the IRS under FATCA for all three reporting years that have now been completed (2014, 2015, and 2016). The ATO complied with this request in a timely manner, sending us a pdf file of a printout of an excel worksheet that spans several pages both vertically and horizontally. 
FATCA requires Australian financial institutions (very broadly defined) to report account holder details as well as account balance, dividends, interest and other income paid, and gross proceeds from sale or redemption to the ATO for transmittal to the IRS. It is evident from the graphs below that the amount of data going to the IRS has exploded since the initial data transfer of 2014 data (transferred 30 Sept 2015).