FATCA and Australia – Part 2 of 2

38 thoughts on “FATCA and Australia – Part 2 of 2”

1. Hello everyone,
   Much love and massive thank you’s for all your support and answers.

   I’m sorry i’ve not replied sooner. I’ve literally been stressed to even read the responses in case there was more “bad news”.

   To answer your questions:
   – i would definitely be seen as a covered expatriate. I believe the 7 year timeframe is not applicable for a covered expatriate, it never expires.
   – stupidly i did not make a copy of what i filled in…. I think i put 000000 for SSN. And i think i said i had complied with previous 5 year tax returned but i had not actually filled in any tax returns.
   – i never want to become American again or live/work in America
   – I did have a US passport and i did travel frequently, including visiting the US. When i arrived i arrived using my US passport. So hence they know i exist.

   What about my US Shares? They are worth quite a bit. When i sell them, will i be taxed or can i get the $ from them? I’ve not sold them in fear of triggering attention on me.

   Thanks @Portland for the tips about not contact the IRS and watching out for that Canadian firm.

   It sounds like *no-one* has been contact by the IRS after renouncing. Could this be correct?

   Thank you
   Gerry

2. Sorry one more clarification:
   Re: 8854 form, I think i answered “yes” that i did NOT have a filing obligation. Even though i technically was meant to file and had an obligation. So i guess this may have been the wrong thing to have done….

   One very important point, the IRS may have been trying to get hold of me. After i renounced I moved. They dont have my contact details. The only way i could find out if they have fines or orders for me would be to contact the IRS or contact a tax agent to contact the IRS. Should i do this?
   I could easily imagine i do have fines/orders but am not aware of them…

   Thank you again
   Gerry

3. @Gerry
   I am not sure what you told them on the 8854 of your income or net worth for them to make an assessment.
   There isn’t a tax collection agreement between Australia and the US for people living in Australia and who also hold an Australian passport, so even if they came after you with an assessment , it couldn’t be collected unless you paid them voluntarily.
   Any financial interests you hold in the US could be at risk if they conclude you owe them an exit tax. You might consider selling the shares if you fear they may have levied an exit tax. It would have been better to avoid the post renunciation tax filing, but it has been 7 years and you have heard nothing.
   I would do nothing to contact the IRS.

4. Sell the shares, get the money out, stop worrying about this. Before selling I would ask the broker whether there would be any mandatory witholding of capital gains tax. Identify yourself to the broker as non-resident alien, not as a former US citizen who may or may not be a covered expatriate on account of having renounced and incorrectly dealt with tax exit.

   The IRS doesn’t care about you and almost certainly has not attempted to contact you. What you said on your 8854 is consistent with someone renouncing who had a very low income (below the filing threshold). That is not really an issue.

   How you get your assets out of the US is the issue. If you sell them as an NRA with no SSN then I doubt the IRS is going to suddenly wake up to the fact that 7 years in the past someone with the same name renounced and filed a dodgy 8854 than nevertheless looked legit.

   We try not to be critical of people here, but don’t you think that renouncing and doing an untrue 8854 was maybe not a great idea given that you own a bunch of US stock?

5. @Heidi

   There isn’t a tax collection agreement between Australia and the US for people living in Australia and who also hold an Australian passport, so even if they came after you with an assessment , it couldn’t be collected unless you paid them voluntarily.

   It’s my understanding that there isn’t an assistance in collection agreement with Australia, period. It would not matter whether someone had Australian citizenship or not, the national authorities would not assist the IRS with collection against a resident. Unless something has changed, it’s only Canada, Denmark, France, Netherlands and Sweden where non-citizen US persons need be concerned.

6. @Ron
   Re tax collection agreements.
   You are correct as I understand it. I just wanted to hammer home he is an Australian living and paying tax in Australia with no collection agreements with the US.

7. Re US shares. Depends how and where they are held. I have US shares in my Canadian brokerage account. If I sold them, the sale would be reported to the Canadian tax people but certainly not to the IRS. No withholding . I have no idea how it works in Australia.

8. Thank you @all for your helpful reassurances.

   I will do my to move forward without thinking about this anymore but as you all know – it’s the fear that one day it will come back to haunt me.

   Good luck to you all,
   Gerry

9. @Gerry

   The renunciation will absolutely not come back to haunt you, never fear. The only concern you have is your US shares, but only if they are held on a US exchange or bought through a US broker, I believe.

10. Pls RT/Like on Twitter: https://twitter.com/JCDoubleTaxed/status/1447792032240467969?s=20

    #Australia @Treasury_AU
    asking for comment on the Australia-U.S. Tax Treaty.

    @FixTheTaxTreaty ! @MichaelSukkarMP

    END Double Taxation of #Superannuation #SMSF

    @ExpatriationLaw @aaro @SEATNow_org @AmExpatFinance

    @Carmelan @DemsAbroad #FATCA @SolomonYue

    https://fixthetaxtreaty.org/2021/10/08/treasury-tax-treaty-consultation/

    Look under Announcements on the FaceBook Group FixTheTaxTreaty

11. With the Australian govt preparing to overhaul the country’s int’l tax treaty network, Let’s Fix the Australia/US Tax Treaty!–a Brisbane-based advocacy group headed up by Karen Alpert–is urging US expats in Oz to submit comments, by the Oct. 31 deadline… https://bit.ly/2Zgxt1D

12. Public submissions are now online in regards to review of Australia’s Tax Treaty Network. Of the 22 submissions 63% were in regards to the Australia-U.S. Tax Treaty and where it needs fixing.

    Fingers crossed something comes out of this.

    My submission is under ANON (2). I have a number of relatively short term suggestions of what the Australian government may do in regards to remedy of where the Treaty may guarantee double taxation.

    Other sources: Facebook Groups: FixTheTaxTreaty & website under this url.

    https://treasury.gov.au/consultation/c2021-208427?fbclid=IwAR1FoSyU6cbJtnVGSCHQlOfN53jm3tZ3lH2MGsw1rqk9ASh5rCdTqOBFMY8

13. Letter sent 3.11.23 to the Australian Government

    3.11.23

    Hon Dr Jim Chalmers MP, Treasurer, PO Box 6022, House of Representatives, Parliament House, Canberra ACT 2600.
    Hon Josh Wilson MP, Chair, Joint Standing Committee on Treaties, PO Box 6022, Parliament House, Canberra ACT 2600
    Hon Local Member
    Mr. Julian Cabarrus, Director, External Affairs and Strategy, Association of Super Funds of Australia (AFSA), PO Box 1485, Sydney, NSW 2001
    Ms Karen Payne, Inspector-General of Taxation, GPO Box 551, Sydney NSW 2001
    Mr Grant Hehir, Auditor-General, Australian National Audit Office, GPO Box 707, Canberra ACT 2601
    Ms Danielle Wood, Chair Productivity Commission, Locked Bag 2, Collins St, East Melbourne VIC 8003
    Ms Gina Cass-Gottlieb, Chair of the Australian Competition and Consumer Commission (ACCC),Australian Competition and Consumer Commission, GPO Box 3131, Canberra ACT 2601
    Ms Sarah Abood, CEO, Financial Advice Association Australia, GPO Box 4285, Sydney NSW 2001
    Mr Marty Robinson, First Assistant Secretary, Corporate and International Tax Division, Treasury, Langton Cres, Parkes ACT 2600

    Why Does Australia Allow Double Taxation of Residents on Australian Income and Investments?

    Hon Jim Chalmers, thank you for the reply through your office and for considering my request for you/Australia to protect my Australian Super, as an Australian tax resident, from U.S. double taxation. I should not have to pay extra U.S. tax outside of Super on withdrawals from Super as an Australian resident. I have double tax compliance advice.

    I asked not to be disadvantaged under Australian law by the overlay of a 2nd and overseas tax code; and to be treated equally with other Australians where total taxation, on Australian source income and assets is generally no more than what is listed on the ATO website, especially for Superannuation.

    I respectfully disagree that ‘Australia’s ability to address this issue is extremely limited.’ I noted that Australia could make warnings and clarifications to stakeholders including residents about the double tax overlay. There is nothing stopping Australia from providing warnings to residents.

    I suggested that Australia may better fulfill care and protection obligations to Australian residents who are U.S. persons via: ATO tax rulings such as: ‘Australia views Superannuation as not double taxable by the U.S. for Australian residents under the Treaty.’ This is how it would work: Australia has a ruling that all types of Super are exempt from U.S. double taxation and reporting for Australian residents, the U.S. does not have a ruling that it should be double taxed, and the U.S. IRS code does not mention “Superannuation” = if there are any issues the taxpayer may point to the Australian ruling and tax treaty. Meanwhile Australia may pursue Super exemption in a tax treaty revision.

    In addition to the above, I see Lack of Legal Review and Management of the Treaty as key areas where the government has not lived up to its obligations, especially by past governments. That is why I have expanded parties in this reply, as it appeared that no further actions would be taken identify and block the double taxation as a result of my direct communication with your office.

    Highlighting the issue is better than hiding the issue such as not publicly mentioning it. In my opinion, highlighting will help bring about favourable outcomes for Australian residents. Additionally, highlighting helps warn particular Australians of additional tax and compliance possibilities beyond what other Australians must face on their Australian source income, and investments.

    There appears to have been no Legal Review provided to Parliament on areas where the Treaty may guarantee double taxation of resident individuals. *This incomplete language is sometimes used that the Treaty “mitigates double taxation” which is just like it would with any OECD countries while this should be a major focus: where the Treaty may “guarantee double taxation” on residents on * Australian source income and investments.** Thus, in my opinion, the Treaty documentation provided to the Parliamentary Joint Standing Committee on Treaties, has left open misinterpretation of the Treaty by Parliamentarians originally asked to vote to approve the Treaty.

    The misinterpretation suggested is that the Treaty avoids double taxation as ‘avoiding double taxation’ is in bold twice at the top of the Treaty, with no apparent clarification on the rest of the Treaty such as how the ‘smaller type’ ‘Savings Clause’ may guarantee double taxation on Australian source income and investments. Australian residents may be mislead as well, in my opinion.

    As the Treaty is Australian law, the government is committed to the Treaty aim of “avoiding double taxation,” in my view. There is no evidence of this outside of treating the U.S. as an OECD Residence Based Taxation country only which it is not. The U.S. has Nationality Based Taxation in addition to Residence Based Taxation. Additionally, a management approach of ‘set and forget’ appears to have been taken, while changes in the tax laws of either Australia (Superannuation) or the U.S. may result in additional double taxation guaranteed.

    Treasury and the Australian Government having substantial size, number of staff, and taxpayer funds, must have substantial management and internal audit to pursue responsibilities. Despite this, there appears, in my view, inadequate care and protection to identify and block double taxation of unjustified laws that another country has claimed to apply to Australians who are U.S. Persons.

    For other points I present my opinion as a report card style of PASS/FAIL:

    FAIL: PUBLIC GOVERNANCE, PERFORMANCE AND ACCOUNTABILITY ACT OF 2013. There appears a low standard of governance and management in regard to the Treaty aim of avoiding double taxation for individuals.

    FAIL: The Australian Government has not enunciated the ‘legitimate purpose’ of allowing the U.S. to simultaneously claim Australian tax residents as also tax residents of the U.S. There is no explanation and Australian justification for allowing the U.S. to access the Australian tax base through double taxation (beyond a basic explanation ‘we have a treaty with another country’).

    FAIL: the ATO website provides no mention of U.S. double taxation, even by footnote (not even in the area under the U.S. tax treaties). This appears to me in violation of the website guidelines for accuracy. By U.S. tax law those abroad may have to provide [double] taxation and tax forms even if they have $0 in income in Australia. There is a $0 threshold and that means all U.S. persons.

    The site is good at providing basic tax information such as on Superannuation but ignores mention of the overlay of the U.S. tax code on Australian only investments for residents. The tax on Super is the Australian tax + any applicable U.S. tax (which may be in working or retirement phases depending on the double tax compliance interpretation of which there are a few) with the two tax codes under Australian law (the U.S. tax overlay is not refuted in the Treaty or elsewhere, thus permitting it). The ATO website does not say this. Plus, there is no tax credit from Australia for any double U.S. tax on Australian residents on their Australian income and assets.

    FAIL: The section of the ATO website outlining ‘your tax residency’ has no footnote as to U.S. double taxation guarantee of Australian tax residents who are U.S. Persons, even those who have never lived in the U.S. or who have $0 source income and $0 assets in the U.S. It is not clear that one may simultaneously be a resident of Australia plus another country for tax purposes. The word “resident” in itself suggests that one may only live in one country at a time. Living in two countries simultaneously does not make sense.

    FAIL: Treasury has been aware of issues mentioned here but nothing appears to have changed. The FixTheTaxTreaty.org website, dedicated to the AU-U.S. Tax Treaty in regard to individuals, has been in existence for more than five years without any apparent interest by Treasury. For no other treaty is there a website dedicated to outlining where it needs to be fixed. Arguably the Treaty allows the most double taxation of any Australian treaty with any other country. The Treaty should attract the most attention of any treaty, in my opinion, as well as other nontreaty measures as discussed.

    FAIL: The Australian Financial Planning Group (AFPG) appears not to know about the double taxation permitted by Australian law. There is no footnote on their website. Their members are, in my opinion, mostly not qualified in the double taxation impact on Australian financial products. They don’t know that under the U.S. tax code, the PFIC Passive Foreign Investment Corporation penalty on Australian trusts that specify tax trust beneficiaries on annual gains, which often are unrealised gains to the individuals, of trust assets as ordinary annual U.S. income. This includes other structures, SMSF, and Australian based mutual funds (why?). There is no Australian government credit available for this double tax. Perhaps, in my opinion, the AFPG have been mislead as there have been no public warnings about the double taxation permitted under Australian law for Australians who happen to be U.S. persons.

    PASS: I received a response letter for my communication to Hon Dr Chalmers.

    Steps which may be taken, in my opinion:

    In my opinion, Treasury may write to the Joint Standing Committee of Treaties in the Parliament, that Treasury has not previously provided to the Committee suitable Legal Review in regards to the AU-US Tax Treaty, especially where the Treaty may guarantee double taxation of Australian resident individuals on Superannuation and on other resident Australian income and assets. That Treasury is devising such a letter. That there has been lack of Australian government management of the key aim of the Treaty to avoid double taxation for individuals for over 30 years.

    Parliament may consider specific legislation requiring proper and then periodic management of the Treaty, including the key aim of avoiding double taxation for individuals. Transparency to Australian residents could be required including public warnings of potential double taxation. Parliament may legislate clarifications or blocking of double taxation guaranteed of Australian source income and investments with Superannuation one area that should have no more tax than for other Australian residents.

    That there are currently no laws requiring that the Treaty meet an Australian sovereignty test (that it has been claimed the Treaty may meet a U.S. sovereignty test as it does not block the U.S. claim of overlay of the U.S. tax code and double taxation on Australian residents). That there are no laws that individual productivity should be a consideration, with aim to reduce over-regulation and double taxation that may cause: (1) individuals to be double taxed and penalised compared to their Australian only neighbours regarding Australian income and investments, and or (2) reduction of mobility between the U.S. and Australia.

    The letter to Treasury may mention that Treasury will go through a public submission process specifically: On any areas around the Australian-U.S. Tax Treaty on Australian residents or Australians who live in the U.S.

    Treasury will prepare a report to Parliament outlining the situation, including the public submissions, with consideration of different groups of individual Australians who are U.S. Persons: (1) those here for just a few years, (2) those here with Australian only spouse, kids, and house, (3) those in retirement, (4) those who were born in the U.S. and came to Australia at an early age with little money, who did not consult double tax compliance, and over the years with work for toil in Australia entered into investments that were highly detrimental under double taxation, (5) those born in the U.S. and after years of work in Australia are up for the prohibitive U.S. Exit Tax of 40% on deemed gains including on Super if they renounce U.S. citizenship, (6) Australian family members living in the U.S. who may gain U.S. Person family members, and (7) the negative impact on the Australian resident family financial unit of one or more individuals being a U.S. person.

    The Committee and Treasury should announce a definition of double taxation different than the U.S. definition: of taxation no higher than the highest level of each country for different types of taxes. That definition only works for dual nationals when both countries are Residence Based Taxation countries, and the revenue and investments in question are not taxed as if the individuals are residents in two countries. The definition to cover all Australians who are U.S. persons should encompass this situation: For an Australian tax resident in Australia with $0 U.S. source income/investments there should be $0 U.S. tax and no reporting forms to the U.S. It should also fit ‘Accidental Americans’ who may have never lived in the U.S. but had a parent from there, or came to Australia at an early age.

    While Treasury will consult with Legal, the Parliamentary Committee should not only rely on this review but should seek their own review of any gaps in the Treaty provision of its key aim of avoiding double taxation, including where it may guarantee double taxation for individuals. It is up to the Committee to resubmit the Treaty to a vote of Parliament including clarity provided – where it was lacking previously – of where the Treaty may guarantee double taxation for Australian individuals. Any new regulations as suggested may be included or voted on separately.

    An alternative is for the Australian government to implement tax laws to back up the obligation previously entered into Australian law to avoid double taxation. This could be to provide tax credit on any allowed U.S. taxes on Australian source income and investments including Superannuation. The credit should include the double taxation compliance expense needed. The credit should be allowed not just on the type of tax in question but should cover all Australian federal tax. If no Australian tax is available to be credited the Australian government should pay this amount to the individuals in question. It may be easier to block the guaranteed double taxation as much as possible, suggesting to the U.S. that the claim of U.S. tax overlay results in double taxation and compliance which is wrong, and to pursue the U.S. to not consider Australian residents as simultaneously residents of the U.S. for double tax purposes.

    If there is pushback it may be mentioned that the U.S. provides no local protection here or resident services to Australians in Australia to justify the double taxation. In my opinion, the U.S. needs to be told that the double tax claim of Australians is wrong; that Australia is a sovereign country with right to tax their residents how they see fit, and as part of that Australia has right to exclude extraterritorial tax claims and regulation laws of other countries for Australian tax residents on their Australian income and investments. That the U.S. signed a treaty with a key aim of avoiding double taxation on individuals. Additionally, Australia is a relatively ‘high tax’ country with residents generally paying higher tax than they would in a similar situation in the U.S. This is before the double tax and compliance overlay especially on federal taxes the U.S. has but not Australia.

    As part of the replacement of the double tax overlay it could be attractive to the US. to replace it with a U.S. passport tax. This may ameliorate a U.S. fixation on revenue neutrality for any change in laws, even unjust ones (the double taxation residency rules are from the U.S. Treasury and not specifically from Congress). The double compliance imbroglio would end, mobility between our two countries would increase, and overall, it would cost less for individuals (compliance cost + tax) and for the IRS to administer.

    Thank you for your consideration.

    Groups highlighting the double taxation include Stop Extraterritorial American Taxation Now (SEATNow.org), Fix The Tax Treaty (fixthetaxtreaty.org), Citizenship Solutions (citizenshipsolutions.ca) and the Association of Accidental Americans (americains-accidentels.fr), and the Isaac Brock Society (isaacbrocksociety.ca) among others

    As I have provided with two public submissions to Treasury, I concede my copy write to this letter and allow reprint, but wish to keep my name private. ‘Joe Citizen’ may be used for a name.

    Regards,
    Private name included in submissions.