In Martin’s case, it was an investment bank that asked
about his renunciation. It is obliged to send through his
details to the IRS, although Martin says he is hoping
that he’s not on the IRS radar.
But Peter Bembrick, taxation and accounting partner at
HLB Mann Judd, points out that it is almost impossible to
escape the radar of different countries and their revenue
services. You are electronically tied to them. “The US
tax rules have wide-reaching implications. If you have
US citizenship you really have to lodge tax returns to
the US, particularly if you want to go back,” he says.
Australia has double tax agreements with 40 countries.
Most countries don’t have any tax claims, but it is hard
to generalise about what certain countries demand.Inheritance tax
While Australia doesn’t have inheritance tax, many
countries have far-reaching laws that give them tax rights
whenpeople inherit property from another country.
If youhave an adult child who has moved overseas
andacquired citizenship through marriage, that
government could make a claim on any assets they
inherit. There are plenty of different formulas that
impose inheritance tax so it is worth checking out.
Some countries tax intergenerational gifts over
a certain threshold, too. For example, England
willtax inheritances over £475,000 ($852,210) by
40%.The Repulic of Ireland also has a big inheritance
tax(33%) on amounts over 310,000 euros ($498,000).
Francehas a steeper inheritance tax as it kicks in at
a muchlower rate.
“Obviously there are risks with transfers of money.
It raisestax issues. It happens all around the world,”
saysBembrick.Worldwide income
Zemelman says that until the FATCA legislation, many
people were simply unaware of their predicament.
“With news coverage and increased treasury regula-
tions, many Australians with US filing obligations are
rectifying their delinquency through the various IRS
programs, including the streamlined foreign offshore
procedures that were created in 2014.”
There was another popular program, which she says
Tax for Expats did not advocate, called the offshore
voluntary disclosure program (OVDP) – it was phased
out towards the end of 2018. But Zemelman says if you’re
not a big earner, the IRS isn’t going to hunt you down.
“The IRS is after secret Rockefellers, not average Joes,”
she says. But at the same time you must not hide out. It
is better to come clean and file your return, declaring
your worldwide income annually.
Zemelman says it can turn out that you don’t have to
pay any tax. She has seen some people even get refunds.As a high-income earner, Martin realised he could be
liable for US tax on his income in Australia, as well as
his superannuation under the US grantor tax rule. He
might also have to pay capital gains tax on Australian
property he has sold over the years. A quick internet
search revealed that he should have been filing expatriate
tax returns with the US government every year, and he
was required to submit a return disclosing assets held
in his bank accounts.
“I can’t believe it. I had no idea. I don’t know what
to do,” says Martin. He was paying tax in Australia
and never thought he would be liable for US tax.
Accidental citizens
Martin wasn’t the only one caught by surprise. Take Katie,
who sold the family home, which had appreciated signif-
icantly, when she divorced after 30 years of marriage. She
was shocked to discover that because she was a citizen
of both Australia and the US, she had to pay $70,000to
the US Internal Revenue Service (IRS).
Also a dual citizen, Ben, who was born in the USbut
left as a baby and has never been back, was keento
avoid any tax obligations. At 35, he took the drasticstep
of applying to renounce his US citizenship. It provedto
be a long process that involved paperwork, interviews
and a fee of more than $1000.
Ines Zemelman, a tax specialist and founder of
Taxes for Expats, calls people like Martin, Katie and
Ben “accidental Americans” and says that in her 21
years of working with dual US and Australian citizens
she has come across them many times. “These are US
citizens or green card holders who were unawareof
their US tax obligations because they resided abroad.”
Typically there are many people who are bornto
US parents and may have never set foot in the US but
are citizens by birth. Then there are those who move
for work or love.
On the radar
One of the reasons US citizens haven’t been aware of
any obligations is that it was only in September 2015 that
Australian authorities signed an agreement with the US
to implement the Foreign Account Tax Compliance Act,
known as FATCA. Under this agreement, Australian
financial institutions (AFIs) are obliged to report US
citizens or US tax resident account holders, or specified
US entities established in the US or controlled by US
persons to the IRS.
AFIs include banks, some building societies, some
credit unions, life insurance companies, private equity
funds, managed funds, exchange traded funds and
some brokers. Once AFIs gather information, they send
it to the Australian tax office, which in turn makes it
available to the IRS.
Money
transfers
raise tax
issues. It
happens all
around the
world