FATCA and Australia – Part 1 of 2
January 2020: This thread continues at FATCA and Australia – Part 2 of 2.
Let’s Fix the Australia/US Tax Treaty! The Australia/US tax treaty needs urgent revision to prevent double taxation. Get involved at www.FixTheTaxTreaty.org
Posts on The Isaac Brock Society website concerning FATCA and Australia
For articles on other websites, see Media and Blog Articles
For general discussion of FATCA, see FATCA Discussion Thread
For links to some websites and contact info (government, organisations, tax information), see Australia Information Links
25: John Richardson and Karen Alpert Session in Brisbane Australia Oct 25, 2018
August 2018
01: U.S., U.K., Canada, Australia and Netherlands form international tax enforcement group
January 2018
July 2017
March 2017
13: What Lessons Can Be Learned from the Sad Stories of “IRS Compliant” Australians Shaun and Mary?
November 2016
30: “Solving U.S. Citizenship Problems” – Online January 9, 2017 (Australia)
August 2016
25: Let’s Fix the Australia/US Tax Treaty!
May 2016
15: Australia: Dealing with Superannuation
February 2016
19: #Australia funds America’s #FATCA #Ethnic Identification System
September 2012
27: Last Day to make a FATCA submission to the Australian Govt
August 2012
28: Australian Government wants YOU to tell them what to do about FATCA
July 2012
20: Australian Financial Services Council lobbies Washington for FATCA exemption
Watch out, the US taxman may be after you
http://www.theage.com.au/comment/watch-out-the-us-taxman-may-be-after-you-20141211-124rs2.html
Submitted as part of ADCS/Isaac Brock Society submissions to The United States Senate Committee on Finance
Chairman Orrin G. Hatch, Ron Wyden and other distinguished members of The United States Senate Committee on Finance.
February 15, 2015
Re: Impact of US citizenship based taxation on US person living in Australia
The US Government has Been Unapologetically Un-American in its Increasingly Discriminatory Treatment of US Citizens Resident Overseas. A Fair Remedy is adoption of Residence Based Taxation.
Thank you for this opportunity to submit my input for your consideration.
Many in the US think that if you are a US person living overseas that you get a tax loophole. The reality is you get a tax sinkhole, not loophole, with additional US tax and compliance tripwires, penalties, and consequences. Living in Australia you are definitely worse off in terms of total tax paid (Australian + US) and compliance required compared to a US person living in the US with the same income and investments; and this = a US policy sinkhole for individuals impacted.
One myth is that the “Foreign Earned Income Exclusion” is a loophole. If you live in Australia there is no benefit to the FEIE. With the top Australian tax rate much higher and cutting in much earlier than with the US tax rates, there is no additional tax owed to the US on earned income even without the FEIE.
A key concern has been the rise of this 4th branch of US government: The US Bureaucracy (US administrative and government agencies including the US Treasury and IRS). The US Bureaucracy has gained increasing power over US laws making them complex and incomprehensible and therefore less easily governed by The Executive and The Legislative Branches. An example of this complexity is that probably none on the US Senate Finance Committee may fathom the complexity of the tax and compliance laws on US persons living overseas.
The US Bureaucracy is increasingly in charge making its demands, laws, and requirements not based on fairness, simplicity, equity, or the Constitution, but on its own needs as paramount to make things easier for itself, with complete disregard for the impacts on individuals and with complete disregard for their compliance costs. An example is the requirement of all US persons living overseas, including children, to report all accounts, if value of total accounts over $10k, to the US Financial Crimes Enforcement Unit. Thus, the US Bureaucracy has dispensed with the inconvenience of the presumption of innocence and starts with the presumption of guilt. Other examples are the astronomical fines if you don’t report your everyday accounts right for receiving your pay and paying your bills. The US Bureaucracy will insist these accounts are “foreign”, the same as the accounts of a New York resident set up in the Cayman Islands with the intent of tax evasion.
How does this all impact a US person living in Australia? David Kuenzi wrote in “American Expats’Tax Nightmare” in The Wall Street Journal that US persons living overseas may “expect to pay anywhere from three to 20 times as much to have a return prepared compared to the cost of a similar domestic filing.” One pays these fees because of the potentially bankrupting penalties if not done right and because of the “byzantine complexity” that changes and gets more complex every year.
Financial planning is made perilous in Australia as two sets of tax laws need to be taken into consideration; putting the financial planning for one’s family at a substantial disadvantage compared to other Australians, other residents with citizenship from other OECD countries, and US persons living in the US.
One example where the laws of two countries collide is the Australian mandated Superannuation retirement accounts. There is a mandatory 9.5% of earnings placed into a superannuation account. The Australian tax is 15% on the way in, 15% on annual earnings, and 0% on the way out for retirement. Yet the US laws don’t recognize that I live in another country and treats my superannuation punitively as an “unqualified pension fund.” The US laws neutralize any benefit of this fund and require tax on the annual account gains as ordinary income, with complete disregard for the Australian taxes paid (no credit for these) as in Australia it is called Superannuation while in the US the laws treat this fund as an “unqualified pension fund” – two different types of taxes on the same account: A representation of double taxation.
Australia will not give any credit for US taxes paid on superannuation as this is not on foreign sourced income for Australia. Nor is there allowance in Australia to withdraw superannuation funds to pay US tax liability on them – so good years in the financial markets become bad in that the elevated US tax liability has to be paid from other funds. The US turns the Australian tax deferred retirement vehicle into a sinkhole via sabotage – as part of an effort to thwart US based tax cheats by harming all US persons living overseas.
My US/Australian tax adviser says take the money out of superannuation as soon as you can at 60, incur the Australian 10% early withdrawal penalty, and don’t take advantage of an Australian 0% tax pension on this; all in 100% contradiction to what most Australian financial advisers say and that is to put more money into superannuation and to keep it there. So this is illustrative that the US laws are not impacting marginally or just a little bit but a whole lot in a life changing way. This is but one example.
In essence the US is interfering into the internal affairs of Australia by countermanding the intention of Australian government policy to encourage savings for one’s retirement via superannuation for Australian residents. One aim of this Australian policy is to reduce dependency on Australian government assistance in one’s later years. On your earned income in Australia you can’t do 401K or IRA as these are not recognized by Australia.
In my opinion, the US tax laws show deep disrespect for the sovereignty of Australia. The US is not immune to the claim of interfering into the internal affairs of another country – it does it all the time even to its closest allies.
Summary, in Australia US laws say that I can’t get benefit of tax deferred retirement savings on my earned income. Yet if you live in the US you can take full advantage of tax deferred retirement savings. There is nothing about equity, liberty, and justice for “all” about this. The Constitution does not say that “all” only applies if one is resident in America.
My tax advisor also suggested moving funds to the US/investing in the US to avoid the US compliance expense and hassle of investments in Australia. I explained to them that my US financial institution already said that I could not make further purchases because I have an overseas address. How is that fair and not discrimination? The US should outlaw US financial firms from denying services to US citizens with an overseas address. I believe the “Patriot Act” needs to be revisited for its un-American/un-patriotic impact on US citizens.
It is not right that I might be subject to the Obamacare investment income tax. There is no Obamacare in Australia. My spouse is an Australian citizen which means that I am not eligible for the higher threshold of not paying this tax of: married filing jointly. Plus I believe my annual gain in my Superannuation retirement account gets added to my income to more easily breach the thresholds. Obamacare sails right through the narrow definition of double taxation of the US written tax treaties – which says that total tax will be no higher than the highest rate of each country for each individual type of tax (the laws are completely oblivious to some Australian taxes paid way higher than US levels). Obamacare investment tax for the US is 3.8%. Obamacare investment tax in Australia is 0% as it does not exist here (but as other taxes under different names). So the full US Obamacare applies 3.8%-0% = 3.8% with no credit allowable against Australian taxes. It’s a completely unfair definition of “preventing double taxation” applied and defies common sense simplicity, except perhaps to tax lawyers. The Obamacare tax is only one example.
Other very unfair aspects of citizenship based taxation are that estate exemption and marital deduction are very much reduced if your spouse is not a US citizen. If I were to die right now then potentially my family would be up for lots of tax and a compliance tax nightmare with the US ripping at the family home and financial security built up over decades in Australia; all of which would not be experienced by other Australians or residents with citizenship from other OECD countries. Some aspects of the estate law are very nasty such as only asset values are considered and no debt is considered against those assets (at some points in one’s life there is lots of debt and these laws would require liquidation); and burden of proof on surviving spouse that they contributed to half ownership of jointly owned Australian assets (not a requirement under Australian law).
I resent that the US laws proscribe tax and compliance on my Australian born Australian/US dual citizen children even though they may never live in the US. I recognize now the big mistake in getting them US citizenship soon after birth.
The Tax treaty definition of preventing double taxation promoted by the US is incomprehensible. There is a myth here that as a US person resident in Australia that you owe no US tax, as Australia is a relatively high tax country and there is a tax treaty that protects against double taxation. Even the Australian Taxation Office website helps perpetuate this myth, by explaining that tax treaties prevent double taxation and with no special notes in regards to the Australian-US tax treaty. Thus one may easily be mislead. Even the Australian government and most all governments have been mislead by the language, ratifying treaties with the US believing that they prevent double taxation on their residents. A number of US persons I have met here did not believe that they had to file US tax as they have not heard this before, it did not make sense to them, or they say that they don’t have any money in the US.
Here is the common sense definition of preventing double taxation: you pay all the Australian tax for Australian source income/assets then there is no additional tax to pay to the US. However, the US Treasury Department definition is not that simple. According to the US Treasury Department the prevention of double taxation is only to be considered for each individual tax – so that the effective tax rate is no higher than the higher of the two countries, with the source country having first right to taxation. Example: pay no higher tax rate for either Australia or the US for say the category of interest income.
Here is the kicker sinkhole: The Australian and US tax systems do not match so often the best tax breaks for each country gets cancelled by the other country. Plus no credits may be carried over for excess tax paid on certain categories to other categories. Common sense may work like this: in Australia you pay way more tax on earnings than the US tax rates and then that excess may be carried to other categories of taxes that the US has but Australia does not to extinguish these tax liabilities. (Once applied The FEIE would eliminate recognition of way higher Australian tax on income as the income as well as the tax on that income gets exempted). The actual practice is more arcane than that and does not work that way, but like this with example of Obamacare: The Australia Obamacare investment tax is 0% because Australia does not have Obamacare, the US Obamacare investment tax is 3.8%, then the US rate applies in full and in disregard of any other taxes the individual must pay to Australia.
It is theoretically possible for someone to pay 100% of their income in tax to their country of residence, yet because the way the different categories of taxes are split up they could owe more tax to the US. It is another example of where the situation of the individual is disregarded by the US, as one may expect to more frequently to occur from a communist government than a democratic government.
Particular ways the US tax system disadvantages Australian Residents.
1. $0 in US benefits. For all the tax and compliance demanded of US persons resident in Australia, in exchange there is $0 in US government services provided. A key premise ignored by the US government is the underpinning justification and fairness of taxation is services in exchange for tax. If there are no US government services provided to me or anyone in my community then there should be no tax. I don’t want any US government services, I just want the US government to stop taxing me and over complicating and financially disadvantaging me compared to the non US person living in the next Australian household, or compared to the US person living in the US – I want my US citizenship to not disadvantage me but to be an advantage as it is supposed to be. Perhaps this issue is no different than for every other country, but it is an overriding important point nonetheless. Some in the US may say something about how the US provides security and keeps sea lanes open with the US navy and thinks I should pay for that. Perhaps what they are really thinking is that the nations of the world should pay for that. If say Australia helped pay for US provided global security I would be paying through my taxes to Australia. Plus Australia is already paying with Australian F16 bombing runs and Australian Special Forces supporting American military action, not to mention the US military and electronic spying bases in Australia. One might think that the U.S. would recognize this support instead of dismissing it. Question: Which was the first nation to invoke a mutual defence pact with the US after the September 11 attack on America; answer: Australia. Perhaps the US should pay Australia.
2.Superannuation – US taxation of Australian retirement account from Australian based earnings. Discussed above the US tax law proscribes taxation of my Australian retirement account – Superannuation – reversing any tax benefit and actually providing a sinkhole. If you live in Canada and I believe the UK there are special tax treaty provisions excluding retirement accounts. Then why is this retirement account taxation exemption not offered for Australia in the Australia-US Tax Treaty when it is offered in the Canadian and UK treaties? Potential answer 1: The Australian negotiating team did not know what they were doing, as they thought that they were preventing double taxation through recommending the treaty to the Australian Parliament. Potential answer 2: the US does not care about the well being of its persons resident in Australia. The US could have said to the Australian negotiating side something like: the US appreciates Australia as a close ally, psst, Australian negotiating team you can ask for exclusion of your retirement accounts as the Canadians and British have this. The US could not be bothered. Superannuation is but one example of an account taxed in a punitive way. Other accounts and trusts get the punitive PFIC tax treatment – all with excessive tax and compliance compared to similar accounts of US persons living in the US.
3.Tax on Australian Home. Australia sailed through the GFC without recession. Home prices are much higher in Australia than in the US as a result of this, other factors, and because in Australia there is $0 tax on the gain of one’s primary residence. Also there is no estate tax impact on the personal home. Therefore, the personal home becomes an incredibly attractive investment for Australians. There are quite a few suburbs here with 1 million dollar average home prices. A key factor underpinning 0% Australian gains taxes on the family home is that other taxes including income taxes are much higher than in the US. If the US had the income tax rates of Australia then the US government could better afford no tax on the family home. The US tax comes in is after exemption of a $250K gain (married filing separately). Part of the US taxation of homes is justified by the fact that in the US one may deduct the loan interest charges from ones income, thereby reducing tax liability. Australia does not have this deduction, so living in Australia you get all of the highest taxes on the family home: potential US gains tax, potential US estate tax, and no benefit from US deduction of interest on your home loan, plus you get the higher Australian income taxes. In great contrast if you are just Australian or a resident with citizenship from another OECD country then you only get the relatively high Australian income taxes. Nor do these people get taxes on phantom gains from currency fluctuations between the US dollar and the Australian dollar.
4.Tax on Australian Estate. There is no estate tax in Australia. Assets are passed on as inheritance with the original cost basis – with tax attracted upon sale (this is incredibly much simpler than the US and a tremendous alleviation of tax complexity for people in their advanced years). An underpinning in Australia of no inheritance taxes is the fact that the income tax rates are much higher than in the US. Yet in Australia for a US person then there may be US estate tax (after exemption) at a fixed US 40% rate. So there is the possibility that one’s estate may incur US estate tax and from the US standpoint the cost basis is reset, yet from the Australian tax perspective then the original cost basis applies and there is no respect for the US resetting the cost basis – another form of double taxation comes into play. Complicating the equation the US marital deduction is not extended to nonUS citizen spouses and assumes these spouses are living in the US, and the tax laws try to prevent the assets from leaving the US when they are already decades gone in another country. So in sum, one gets jujitsued by the two tax regimes for estate and many other types of tax.
5.Dampening Employment/Community Engagement. This is true for all nations. As the US wants its subjects to report any company confidential employer accounts they may have signature authority over, this definitely potentially dampens employment prospects with potentially major fines. The reporting also impacts business partnerships, business in general, and say if a US person wants to be treasurer of the local girl scouts. Options are limited, and there may be lots of penalty if the nebulous rules are not followed to the IRS liking. This is way too much regulation of a US citizen’s pursuit of happiness, in a discriminatory way compared to US citizens living in the US.
My spouse wanted us to setup comprehensive wills. We had meetings with a legal expert. Yet it soon became apparent that there would be major difficulties as I and my kids were US persons. The legal representative was oblivious to the pitfalls of being a US person and would have set up wills that would work quite well under Australian law but would run afoul of US laws and US PFIC laws.
One point we were thinking about was to include a plan for the possibility for both myself and my spouse die in an accident. A common approach to this is a trust structure for the surviving children, yet with US PFIC tax laws this would greatly diminish the ability of the trust to preserve and build capital. One way to get around PFIC is to have a trust in the US, yet many US financial institutions don’t want to deal with you if you have an overseas address. Plus that would then be a foreign trust with Australian tax and compliance considerations. Plus why would someone set up such a trust in a foreign country? I was also concerned about subjecting non US person relatives to all the US tax and compliance laws of administering such a sinkhole trust. Since then we have kind of gone with a plan B which is for me, US person, not to die unexpectedly – thus foregoing a planning consideration made far more complex by US law than for US persons living in the US. All this puts stress on a marriage including the need to separate finances and all the extra compliance, tax, and penalty considerations not faced by the Australian household next door.
While the citizenship based taxation laws remain, Obama and Congress should be honest with Americans: they should say yes you have Philadelphia Freedom yet only if you live in the United States. Americans are not free to move to another country other than for short stays or with sponsorship by a US company. If you end up living multiple years or the rest of your life in another country the laws of America will punish you harshly. Such honesty would be a refreshing departure from US Treasury Department doublespeak about avoiding double taxation.
JFK famously said in Berlin ‘we don’t need walls to keep our people in.’ Regan said, ‘tear these walls down.’ Fast forward a few decades and it is the US government who is increasingly building a virtual Financial Berlin Wall around its citizens to keep them in the country, by punishing those harshly who have ended up living in another country.
The world is becoming increasing integrated and one may imagine that the US would want to be integrated with the world and encourage mobility of its citizens to facilitate this integration and further global trade benefits to the US. Instead the US is increasingly building its Financial Berlin Wall to exert control and punishment over its citizens, and ultimately of the US itself.
What is needed is an affirmative action program to right the US government discrimination of US persons living overseas. A start would be a switch to a system of residence based taxation.
However, unfortunately, there is, in my opinion, a complete failure of US representation for the 7+ million US persons living overseas, as their votes get split among the 50 states rendering them of nil concern in the past to US government representatives. Plus there is no true representation as France has as in Members of Parliament only representing French citizens overseas. As a result of this failure, I may assure you that the 15% approval rating for Congress must be a fraction of this for US persons living overseas – which only makes sense as when you live overseas you get $0 in US government services but pay double tax, jump hoops of extra compliance, and are exposed to potentially bankrupting US compliance penalties.
Double taxation, without representation, with excessive compliance, with excessive compliance penalties, without regard for one’s well being, and without any US government services is tyranny. This should sound familiar as in a slogan the American Colonists used as justification to break from England. For such justification to be elevated and cherished as part of American History, but dismissed as any justification for claiming unfair treatment by the US government of US persons overseas represents US Government hypocrisy.
For US persons living overseas, the US government has lost its way in regards to the principles upon which America was founded, including the inalienable rights of liberty and the pursuit of happiness. The 4th of July celebrations are now a hollow celebration of the principles America once stood for. Think about that on the next 4th. Instead, in my opinion, the US functions more like one would expect North Korea or a communist country in regards to its subjects overseas along the lines of “the law is the law” with nil consideration for one’s wellbeing or that there is $0 in services provided in exchange for the tax and compliance. You never thought that you would rightfully be compared to communists in your rules on US citizens did you? Prove me wrong. Set it right.
The implementation cost of FATCA on the banks of the world by one estimate is $200 billion. This far outweighs in and of itself an estimated $8.7 billion return to the IRS over 10 years.
FATCA represents irresponsible legislation not just on inflicting massive compliance costs on banks of the world that far outstrip any gain. The US government has been additionally irresponsible in view that the Senate has shirked its Constitutional responsibility to approve international treaties by not demanding submission of FATCA IGAs to the Senate for review and approval.
FATCA IGA’s have required the countries of the world to disregard their privacy and discrimination laws, inflicting loss of privacy and institutionalizing discrimination against US persons living overseas in a way that would not be legal in the United States; also in a reminiscent way to the institutionalized discrimination of Jews in pre-World War II Germany. Thus it appears Constitutional rights were not observed or respected in the drafting of the legislation, so says fatcalegalaction.com.
The Senate should take particular note of how the Executive Agreements of FATCA IGAs were forced upon the governments of the world under threat of extortion of being excluded from the US dollar banking system – under threat of 30% withholdings on US dollar SWIFT payments. Some may equate this to state level extortion that normally is not part of harmonious diplomatic relations especially with close allies.
Who is accountable in the US Government? When the banks of the world have spent $200 billion implementing FATCA and FATCA gets deemed unconstitutional, who in the US Government will bear this responsibility for poor governance and not doing proper homework on the legislation? I may suggest that it is the Senate that has responsibility and whose members should get a massive pay cut for not doing their job. However, the new Republican controlled Senate has opportunity to set things right.
Part of the atonement for the Senate would be for the new Republican controlled Senate to delay FATCA implementation and to bring in the IGA Agreements for Senate review – as without this review and approval they lack legitimacy as US international treaties. Else one may think that the Senate views the U.S. Constitution as a scrap of paper. Also there needs be retrospective repeal of taxation of retirement funds of other countries and other taxes on US persons resident overseas. There needs to be an affirmative action plan to right US government discrimination of its citizens living overseas.
The Senate Finance Committee may arrange to fund H.R. 597. HR 597 targets the study of the impact and of US government policy on US citizens living overseas. It has been a gridlocked measure under the custodianship of The Americans Abroad Caucus in the House. How about allocating $20 million to get proper analysis of harmful impacts of U.S. government regulations on U.S. citizens abroad in the areas of (1) regulation/compliance, (2) double taxation (common sense definition), (3) financial planning, and (4) estate; with the view that US persons living overseas get $0 in US government services. Please consider Australia for analysis in the terms of reference. The big international accounting firms have the information to make such analysis so these may be engaged. However, note that the big accounting firms have a vested interest, in my opinion, in keeping the rules complex to the extent that only they may be in position to sort out all the regulations for the perplexed individuals impacted.
It would be prudent to have a balance of Republicans on The Americans Abroad Caucus, and for HR 597 to be rewritten as in my view it has a very much ‘within the Beltway’ perspective embedded into its current incarnation. The focus should be, in my opinion, on what forms of affirmative action must be pursued – such as residence based taxation. Or, perhaps this caucus is irrelevant. Maybe the Senate is irrelevant; instead of showing leadership maybe the Senate is waiting for the Supreme Court to tell them how to do their job in regards to observance and respect of the Constitution, and the wrongfulness of the discrimination against US citizens living overseas.
I may assure you that many long time, die hard Democrats overseas have turned into single issue Republicans on this issue of FATCA and CBT. I place more faith in the legal route in pursuing injustice toward US persons overseas via ADCS, fatcalegalaction.com, and Republicans Abroad, to make up for the shortcomings of the Legislative and Executive branches and an out of control US Bureaucracy. The US Senate may please surprise me.
Currently, the US Bureaucracy, in my opinion, promotes state sponsored financial terrorism against US citizens living overseas. “Why are we doing this to folks? Why are we tormenting them in this way?” (Quote from Nina Olson, National Taxpayer Advocate.) In my view, in regard to US government policy and discriminatory treatment toward US persons living overseas, I consider you all communists until proven otherwise.
Thank you for your consideration.
JC Double Taxed, Australia
@JC
Great submission. For future reference, Australia does not have a Social Security Agreement with the US. As far as I am aware this means that any US person who is self employed in Australia will be subject to full US self-employment taxes (FICA and Medicare), which are about 16% in addition to their Australian tax with no relief. Imagine the bill that may be faced by a highly paid self-employed “consultant” who attempts to file 5 years of back taxes in order to renounce. Tens of thousands just for this alone.
Is this the same, osgood: http://www.irs.gov/Individuals/International-Taxpayers/Totalization-Agreements. I don’t understand it all.
Also: http://www.irs.gov/Individuals/International-Taxpayers/Social-Security-Tax—Medicare-Tax-and-Self-Employment
Self-Employment Tax
Self-employment income is income that arises from the performance of personal services, but which cannot be classified as wages because an employer-employee relationship does not exist between the payer and the payee. The Internal Revenue Code imposes the self-employment tax on the self-employment income of any U.S. citizen or resident alien who has such self-employment income.
However, nonresident aliens are not subject to self-employment tax. Once a nonresident alien individual becomes a U.S. resident alien under the residency rules of the Internal Revenue Code, he/she then becomes liable for self-employment taxes under the same conditions as a U.S. citizen or resident alien.
Note: In spite of the general rules mentioned above, self-employment tax may be imposed on a nonresident alien under the terms of an international social security agreement (Totalization Agreements).
@JC
Well said submission.
@osgood
Australia does have a social security agreement with the US but I am not sure it is very relevant to the self-employed.
https://www.dss.gov.au/about-the-department/international/international-social-security-agreements/current-international-social-security-agreements/social-security-agreement-between-australia-and-the-united-states-of-america
@EllenDownunder
My mistake, I missed this in my quick glance at the list of agreements. It is relevant to self-employed:
Where a national of the United States who is a resident of Australia works in the capacity of a self-employed person, the person shall not be subject to the laws of the United States.
So, it isn’t a factor in Australia, although It most definitely is in New Zealand and any other country that does not have one of these agreements.
My apologies for the mistake – and thanks for pointing it out so quickly.
@calgary411
I think the reference you cite refers to non US citizens working in the US and how they may potentially obtain relief from US self-employment taxes under one of these agreements while working in the US. The details of the 25 agreements can be found here: http://www.ssa.gov/international/agreements_overview.html
Although there is relief for US persons who are self employed in those countries, as usual there is extra paperwork required. This is from the Canadian one:
How many people are doing this? Hardly anyone I would guess.
Here is the list of countries Australia has Social Security Agreements with other countries:
https://www.dss.gov.au/about-the-department/international/international-social-security-agreements/current-international-social-security-agreements
I am surprise Australia doesn’t have an agreement with Great Britain.
@osgood
Does this mean that self employed people do not have to deal with FATCA? :
Where a national of the United States who is a resident of Australia works in the capacity of a self-employed person, the person shall not be subject to the laws of the United States.
@EllenDownunder
I interpret that to mean they will not be subject to the laws of the United States concerning social security matters. It is nothing to do with the FATCA regulations.
Rats!
@EllenDownunder Thanks for the clarification about US self-employment taxes (FICA and Medicare). I am not in that situation yet as Calgary411 says it must be certified and not everyone is doing it.
@Osgood. (FICA and Medicare), which are about 16%. That is another form of double taxation, as New Zealand will not allow credits for these taxes paid. FICA one may get back yet then I believe the benefits paid to you outside of the US are reduced – definitely not fair if contributed and are not getting any other US government services. The Medicare one is 100% unfair as you can not enjoy Medicare not living in the US. Plus I read something that if you return to the US there is a waiting period (a few or five years) before you may collect on Medicare – very nice after it all has been paid for.
Have you sent in a submission for the US Senate Finance Committee?
I am looking for gift tax example on gifting a share of home ownership to spouse over a number of years without sale of house, to satisfaction of IRS ?
Bank restrictions on US persons in Australia
http://isaacbrocksociety.ca/2015/02/21/the-ripple-effect-is-here/comment-page-1/#comment-5609059
Any other Americans living in Aussie ?
@JakDac- apparently, there are lots of us here in Oz. Most of those I’ve run into gave up US citizenshio prior to 2010, so they can’t really speak to what I might expect now…I’d love to hear from a US/Aussie who had a similar set of circumstances as mine.
Are you out there?
Otherwise, I’m extorted $3000 from my kid’s uni savings.
🙁
Happy to contact you HOW ?
Where are you located? in WA?
girlDOTdownunderATyahooDOTcom
Ta.
IRS chases US citizens in Australia
http://www.afr.com/business/accounting/irs-chases-us-citizens-in-australia-20150407-1mf5ei?stb=twt
JC:
Please copy the content & paste it here. The site requires a login.
Or, do a basic rework of the contents & post it.
Thanks!
The Internal Revenue Service (IRS) is scrutinising the tax affairs of United States citizens living in Australia with renewed intensity, as the worldwide battle to shore up dwindling government tax reserves heats up, according to local accountants.
An unprecedented level of information about the affairs of US citizens living abroad will flow from Australia to US authorities from July 1 this year when the Foreign Account Tax Compliance Act takes affect.
“The level of awareness is low, and the penalty regime for getting it wrong is high,” Moore Stephens private clients partner Michael Dundas said.
“Penalties average $10,000 per unfiled return, and given that there are multiple forms required per year, can easily rise to $20,000 – $30,000,” Mr Dundas said.
Chatswood accountant Venetta Sacha said the prevalence of FATCA-style regulation worldwide is adding to the complexity of advice, and applying pressure to financial advisors to maintain their moniker of “trusted advisor”.
“We normally treat [clients] as residents here [in Australia] and don’t pay attention to what their obligations are overseas,” said Ms Sacha, who has a number of US clients impacted by the new FATCA rules.
“However, that’s changing as we’re exposed to more changes and legal regulation,” she said.
Exposure is particularly high for US citizens with self managed superannuation funds, because these are tax effective vehicles under Australian tax law, but the US treats income earned in SMSFs as personal income taxed the US marginal rate which can be upwards of 40 per cent.
“Trusts on the whole are not used as extensively in the US, there is a lot of grey area,” said Mr Dundas.
Family homes are another problem area because they are not tax exempt in the US.
BDO tax partner Mark Molesworth has witnessed a surge in queries from US citizens living in Australia, even if they departed the US permanently many years ago.
“The penalties for non-disclosure are large, even where there is no tax actually payable to the IRS,” Mr Molesworth said.
Like Mr Dundas, BDO is encouraging US citizens living in Australia to take advantage of a voluntary disclosure program offered by the IRS. This program offers considerably reduced penalties for such disclosure.
FATCA is expected to highlight cracks in the double taxation arrangements between Australia and the US.
“The two tax systems [US and Australia’s] don’t sit as nicely together as say the United Kingdom’s and Australia’s,” said Mr Dundas.
Accountants fear public officials are too distracted to execute what they see as a number of “easy fixes” to head off problems.
For example, Mr Dundas said the issue of SMSFs could be easily avoided if the Australian government would adjust the double taxation agreement to recognise SMSFs as a pension fund for US tax purposes.
The intensified IRS scrutiny comes as representatives of foreign multinationals Google, Apple and Microsoft appear before a senate inquiry in Sydney on Wednesday into corporate tax avoidance.
It will be followed tomorrow by representations in Canberra, and Friday in Melbourne, by their Big 4 firm financial advisors PricewaterhouseCoopers, Ernst & Young, KPMG and Deloitte.
The Australian Financial Review revealed on Tuesday that mining giants BHP Billiton and Rio Tinto are being pursued by the Australian Taxation Office for channelling billions of dollars in profits through companies that pay almost no tax in Singapore.
A report by the Tax Justice Network shows that of Australia’s largest 200 publicly listed companies, 29 per cent have an effective tax rate of 10 per cent or less, and 14 per cent have an effective tax rate of 0 per cent, well below the statutory tax rate of 30 per cent.
Multinational corporation tax avoidance and minimisation are generally achieved through profit shifting to low tax countries or utilising intra-company or related party dealings among subsidiaries.
In Australia, it was estimated that in 2009, the volume of related party dealings exceeded 20 per cent of gross domestic product.
US expatriates’ taxing questions
http://www.ft.com/intl/cms/s/0/7c45e5e8-d707-11e4-97c3-00144feab7de.html#axzz3WqihcCUK
” I will make some enquiries”
Ambassador I Australian Embassy I Washington DC
Kim.beazley@dfat.gov.au (helping)
Thanks for raising this issue with me.
As flagged in my earlier email, I have made some enquiries within the Australian Government and can confirm that we are aware of the problem you outline (which stems from a mismatch between the Australian and US taxation treatment of Australian individuals’ superannuation entitlements). You are also correct that a solution will require renegotiation of the Australia/US tax treaty to specifically address the problem (by inserting provisions similar to those in more recent tax treaties that the US has with some other countries).
In July last year the Australian Treasury invited public submissions on the countries with which Australia should seek to negotiate new or updated tax treaties, as well as the key outcomes Australia should seek in such negotiations. This issue was raised by a number of stakeholders. The Government has noted it and will seek to address it when the Australia/US tax treaty is next reviewed.
That said, tax treaties are generally not renegotiated on a single issue basis and often take considerable time to negotiate because of the need to work through all the issues of importance to both countries. In addition to the renegotiation process itself, changes to tax treaties require legislative change. This also adds time to the process and makes it subject to other legislative priorities.
Best Wishes
Kim
Here is another article:
Australia Resident US Citizens Hunted By IRS
http://www.financialbuzz.com/australia-resident-us-citizens-hunted-by-irs-246524
I have an idea that if this law directly affected any of those who have the chance to fix it, it would already be fixed…Saying, “tax treaties are generally not renegotiated on a single issue basis and often take considerable time to negotiate because of the need to work through all the issues of importance to both countries. In addition to the renegotiation process itself, changes to tax treaties require legislative change.”, sounds like mumbo-jumbo. Saying you “can’t” do something usually = “won’t, unless pushed”.
As one article noted, simply adjusting one bit- SMSF = IRA & thus non-taxable, would benefit many & would not be a complicated nightmare as all gov’t mouthpieces seem to want you to believe.
April 16, 2015
Imperative to Revise The Australia-USA Tax Treaty; To Prevent Double Taxation of Australian Residents And To Incorporate US Respect For Australian Sovereignty.
The Honourable Kim Beazley, Australian Ambassador to the United States, and esteemed former leader of the Australian Labor Party.
Currently, the US Senate Finance Committee is accepting submissions in regards to tax simplification and fairness, and is copied on this letter. In my opinion, there is nothing simple and fair about US tax rules in regards to Australian tax residents who are US persons. No one in the US (or Australia) appeared to go through how the onerous and escalating US compliance would all work out through the tax treaty on the basis of simplicity or fairness; and the US Treasury is unfairly oblivious to its excessive compliance burden and excessive compliance penalties, as a communist government may be oblivious to the consequences on individuals of its policies. Another intention is to illustrate to the US Senate how US tax policy and the Australian-US Tax Treaty represents infringement of Australian Sovereignty and lack of respect for Australia.
Mr. Beazley, a primary intent of this letter is to provide you with some actionable and feasible steps to remedy US infringement and disruption of Australian domestic retirement and tax policy.
Word is out of a response from you about a request to exempt Australian superannuation in the tax treaty from US taxation; that you replied that tax treaties take a long time to revise and usually it is not done over a single issue. Reply was made to you that Superannuation has been in place since 1992 and is that enough time?
May I provide a point of information, that there are multiple areas where the tax treaty with America does not provide protection for Australian residents from double taxation, and that Superannuation is only one of the more glaring shortcomings of treaty “protections.” In regards to Super: The Australian Government has a policy to encourage build up of retirement savings through Superannuation accounts to help Australian residents save for their retirement on a tax reduced basis. Part of this policy is the aim to reduce the potential for dependency on the Australian government pension for financial support in one’s later years.
However, the tax treaty, by not saying otherwise, lets US tax policy treat these Australian Superannuation accounts for Australian residents as “unqualified pension funds” for US tax purposes; and to tax superannuation punitively to the extent that my US/Australian tax advisor states that I should not make any after tax contributions to Super and that I should pull all the money out of Super at the earliest possible point and avoid the Australian tax free pension phase because of punitive US taxation. Mr Beazley, please recognise that this is in 100% contradiction to what nearly all Australian based financial planners advise for Australians. The point is, the US policy is not impacting Australian residents who are US persons just a little bit or marginally, but in a very dramatic way.
In my opinion, such upending of Australian government Superannuation policy for Australian tax residents by a foreign country is a direct intervention into the internal affairs and sovereignty of Australia; and shows deep, perhaps unintended, disrespect by the US for Australia and Australian law as a sovereign country.
The sovereignty infringement does not end with Superannuation, as the US has a number of taxes that Australia does not have and these flow straight on top and include taxation of family home, estate, and even Obamacare NIIT investment tax. Please also recognise that Australian US persons may have Australian only family members and to allow US taxation of super, family home, estate, etc. is to undermine the financial security net of the family unit for these Australian families and Australian only family members. These issues are subject of a human rights complaint with the UN against the US by members of The Isaac Brock Society and Maple Sandbox.
I believe one of the reasons the current tax treaty is in place, and was not questioned, was that most in the Australian government approving and ratifying the treaty were duped by the doublespeak of the treaty language about reducing double taxation. Tax is an obtuse topic for many and when the US system gets overlaid upon the Australian system it all gets unfathomable. (Or in reality, the treaty was probably approved as part of unofficial government policy to agree to what ever the US asks and to disregard everything else. The environment is different today with Australia signing onto the AIIB over US objections). Some other countries such as Canada and the UK have some exemption for their retirement accounts in their tax treaties but not Australia!
Here is a big part of the conundrum: the way the US written tax treaty works is that each tax category is treated separately and for an individual category the tax paid to both countries shall be no higher than the highest rate of each country for that category of tax, with source country having first right of taxation. So lets say Australians pay much higher income tax in Australia with higher rates cutting in much earlier than in the US; by the treaty any extra Australian tax paid on Australian earnings above US rates may not be applied as a credit against US tax liability for taxes the US has but not Australia. This defies common sense belief of ‘prevention of double taxation.’
In Australia you pay much higher tax on your earnings and GST and you pay all these taxes, but wait the US wants to tax more. The US just may call a certain tax by a different name and bam it flows on top of all taxes owed, as double taxation. A good example is “Superannuation” that by US tax law is an “unqualified pension fund. ” There is no US credit for the Australian 15% super contributions tax or Australian 15% earnings tax. Superannuation represents a complete failure of tax treaty “protections” and recognition of taxes paid in the other country – a clear case of double taxation. And for Australia there is no credit against Australian tax for US taxes paid on Super as the account and its earnings are Australian source (not “foreign” source). Nor does Australia allow Australian residents withdrawals from Super to pay the US tax liabilities on the account. So a good year in the markets become a bad year as the tax on the annual gain in super at the US marginal tax rates will apply in my case, and the money to pay this liability must be found/taken from elsewhere.
Here are some actionable steps for you:
1. Write to the ATO with ‘point of information’ that their website is substantially misleading in regards to tax treaties wrongly stating in a blanket way “that they prevent double taxation.” https://www.ato.gov.au/General/International-tax-agreements/In-detail/Tax-treaties/What-are-tax-treaties-/ Also Austrade: http://www.austrade.gov.au/Invest/Doing-business-in-Australia/Investor-Guide/Running-a-business/Understanding-Australian-taxes There is no footmark or note about the Australian-US tax treaty! Surely, you may have heard of London Mayor Boris Johnson (lived in US only years 1-5) getting chased by the US IRS for payment of capital gains on his home in London. US taxation of London Mayor Boris Johnson on top of and in disregard of the relatively high UK taxes and VAT is illustrative in a similar way that: Australian residents do not get double taxation “prevented,” they may get it “reduced,” but for certain they may get it guaranteed. That is where the ATO website is misleading, providing bad tax information and playing up to the misconception that: if you live in a relatively high tax country such as Australia, you are protected by a tax treaty that ‘prevents’ double taxation, and that Australian US persons have nothing to worry about. The ATO is not helpful to bringing about treaty remedies based on simplicity, fairness and protection of Australian sovereignty. The ATO has/will hurt Australians who are US persons in a negligent way by pretending and stating nothing to worry about. Meanwhile the ATO is complicit in FATCA reporting on accounts of all Australians who are US persons to the US IRS to pursue with potentially bankrupting compliance fines for not reporting their Australian “foreign” accounts and income. Here is a good one for you to think about: The Canada-US Tax treaty states that Canada will not help the US IRS pursue US tax debts against Canadian citizens resident in Canada. So clearly there has been more nous on the Canadian side in negotiating their treaty.
a. Write to the ATO to amend substantially misleading information on the ATO website along the following lines:
i. Footnote: In the case of the Australian-US Tax Treaty, while double taxation is reduced for Australian residents there may be substantial US tax liability on superannuation, the sale of the family home, estate, and other taxes the US has but not Australia, with no tax credits allowed against Australian tax liability for Australian source income and assets. Additionally, there are substantial US penalties for not reporting to the US Financial Crimes Unit Australian accounts of $US10,000 value or more, or regularly filing US income tax returns even if no US tax is owed and even if one has $0 in US based assets and income. Expert tax advice should be consulted by Australian US persons including Greencard holders resident in Australia, and Australian citizens resident in the US.
2. Pursue treaty change to simplify its impact, elevate fairness, and to protect Australian sovereignty. Your legacy may benefit, and you may suggest to the current Labor Party Leader Bill Shorten to make this issue a point of Labor Party differentiation with US Policy locksteppers in the Liberal Party. What do we know about changing the treaty? I believe it is a good assumption that the US will likely reply to a treaty change request along the lines of: “my way or the highway.” After all the US is special and kind of assumes all countries of the world should obey US law and laws of other countries are less important than US laws. So here are some “hardball” suggestions. Some or all may be pursued:
i. On simplification, fairness, and respect for Australian sovereignty grounds Australia requests agreement and tax treaty change with the US that Superannuation, personal home, estate, Australian tax free threshold, any additional tax above Australian tax rates, Obamacare NIIT Investment tax, and $5 million asset exemption from US taxation for Australian residents – to be codified in a new tax treaty else:
1. Australia will levy $US2 billion a year for US use of facilities and information from Pine Gap and other intelligence gathering facilities. It does not matter if there is an existing agreement this new usage fee will just be on top. If they don’t want to pay then cut the power!
2. Australia will levy $US1 billion a year for use by US military of Australian bases , as in the current arrangement in the Northern Territory.
3. Australia will not speak out against the infringement of nations into the internal affairs/sovereignty of another nation, in support of US policy. There is a faction in Australia that thinks Australia follows the US too blindly.
4. Does Australia really need to buy 72 F-35 fighters? Why is military spending that assumes a never ending mining boom not questioned? Perhaps reducing the number purchased will help provide more funds to help Australians instead of helping support US industries.
5. Australia will not allow US ships with nuclear weapons in Australian territorial waters (New Zealand did this). This would make Labor’s Coalition buddies The Greens quite happy.
6. In regards to 1 and 2, Australia does have a widening budget deficit and growing debt and these would help. Australia has lots of ‘relationship capital’ with the US allowing Australia to speak out for its own interest, without tipping the relationship. Often in years past when the US speaks out on the world stage there are only a few countries that support the US. Australia has been very faithful sending troops to support America in many conflicts. And how many counties and “allies” are helping bomb ISIS in the Mideast? Australia is one of a few counties there. And what did Australia do after 911 (think about this US Senate Committee)? Australia evoked the ANZUS mutual defence treaty publicly. Kim Beazley there is room for some opposition to US policy that infringes on Australian sovereignty. A simple firm request for respect of Australian sovereignty by incorporating (i) above in the tax treaty would suffice.
To the Senate Finance Committee: I am an example of a ‘US mini ambassador’ miffed by US policy in regards to US compliance and taxation requirements of US persons tax resident overseas. I get $0 in US government services for the double taxation without representation, yet with excessive compliance and potentially excessive compliance penalties. The US Revolution was a war against citizenship based taxation imposed by a foreign overseas power. The US policies toward US citizens overseas are not much different. Yet the Democrats have proven themselves to be Communist (un-American) in regards to their FATCA law and tightening regulations on US persons overseas. Lately the Republicans have proven more agreeable towards loosening and removing the US policy noose on US persons living overseas, with many long time Democrats overseas out to strongly support Republicans on the single issues of repeal of FATCA and changing citizenship based taxation to residence based taxation. I quote Republicans Overseas submission to the Senate Finance Committee:
We should have policies that encourage successful Americans and their children to retain their American citizenship, rather than driving them away from America.
To Kim Beazley: Australia should do much more to prevent the US tax dysfunction and over complication from disadvantaging Australians living in Australia. Indeed an overriding aim of the Australian-US Tax Treaty should be simplification, fairness, and respect for Australian sovereignty. Not only the treaty fails in these regards but also the Australian FATCA IGA, in my opinion. It is clear that while the US likes to trumpet the freedom Americans enjoy, Australia provides much greater freedom for its citizens especially freedom to live and work in other countries, and freedom to leave Australia. As a result Australia enjoys heightened influence in the counties of the world. America should follow the example of Australia and all other OECD nations and adopt Residence Based Taxation.
I believe that you are familiar with The Master Nationality Rule, that the laws of the country of residence overrule all others. The Australia-US Tax Treaty needs revision to reflect this accepted international convention.
Thank you for your consideration,
Regards @JCDoubleTaxed
(While believed to be Australian and byzantine US tax compliant, true identity not disclosed because of US state sponsored financial terrorism of its own citizens, unconstitutional so says http://www.fatcalegalaction.com)
WOW
Everyone spread the news