“Anecdotally, those who
have come forward and
filed through the various
delinquency programs
have had no issues and
most have not paid any tax.”
She says it’s a miscon-
ception that if you file you
will owe tax. “This is not the
case for many. You must file but you may not owe.”
Zemelman says failing to file puts you at a disadvan-
tage. She points out that since 2014 the IRS has been
offering generous amnesty programs to allow you to
catch up without penalty.
“Utilise the streamlined foreign offshore program,
or its derivatives, to come clean,” she advises.
Zemelman says these programs won’t last forever
and the premise is that you should be forgiven because
you didn’t know. “But as more and more time passes,
proving you did not know will become harder. Should
the IRS remove the current amnesty programs, resolv-
ing your delinquency may become far more expensive
and tedious.”
She says the US has a large toolbox – you don’t want
to have to dig too deep into it. “Not only is the process
arduous but it can become very expensive from a com-
pliance perspective.”
Bembrick adds: “You don’t want it hanging over
your head.”
Consult the experts
Finding an expert on foreign tax laws is essential, says
Bembrick. It is a specialist area that your local account-
ant probably won’t be across. A firm with overseas
affiliates that specialise in these issues is a good place
to look for help.
For US citizens who move to Australia as adults, the
obligation to lodge tax returns in the US isn’t such a
surprise. But the tax systems have some big differences,
such as the treatment of the principal residence – in
Australia they are free of capital gains tax. US citizens
also should think carefully about setting up an SMSF
as opposed to joining a pooled superannuation fund
because the former has tax obligations in the US.
Come clean with the IRS
Americans must declare their
annual worldwide income to the
IRS. Even if you don’t owe any
tax, they must declare income
from all sources on US tax returns
each year.
File a foreign bank account report (FBAR) with
the treasury (no tax generated – simply an informa-
tional report) if your non-US financial accounts are
over $US10,000 at any point in the year. This includes
all non-US bank, investment and retirement accounts,
and more.
When you sell real estate outside the US, you are
up for capital gains tax in the US. If it is the primary
residence for two out of the previous five years, a single
person can claim a deduction of $US250,000 from any
gain you made. If you are married the amount doubles
to $US500,000.
Investment properties don’t get any deduction but
if you pay capital gains tax in Australia you qualify to
reduce your US CGT liability.
If you run a self-managed super fund, the IRS wants
to know about it. It treats it as a foreign grantor trust,
which carries additional reporting requirements. More-
over, the annual growth in an SMSF is taxable to the
owner when received and not eligible for tax deferral.
If you belong to a pooled superannuation fund, it is not
treated as a grantor trust and typically doesn’t have the
same US tax obligations.Inheritance traps
If you have property in both countries you hold dual
citizenship with, take care with your estate planning.
In particular, make sure you leave a will with clear
instructions about what is to be left to your beneficiaries.
Lawyers warn that dual citizens with assets in both
countries, such as Ireland, Italy, Greece, France, Spain,
China and Japan, could be hit by the law of the country
called “forced heirship”, which stipulates that certain
people must get a proportion of the estate.
If the rules of the other country clash with your
wishes about who will inherit your estate, your family
could be in trouble. MMY MONEY DUAL CITIZENSHIP
The ‘forced
heirship’
laws in some
countries
mean certain
people may
get part of
your estate