Author Archives: nathan

Foreign Account Tax Compliance Act (“FATCA”)

FATCA has been adopted by Australia under an intergovernmental agreement. As a result, Australian domestic law now requires all Australian financial institutions to report US person depositors to the Australian Tax Office, which reports them to the IRS. This potentially creates US tax consequences for Australian resident US persons who are not current with their US tax reporting obligations.

Moodys has a thorough understanding of FATCA and can provide advice to any US persons living in Australia who are wondering how FATCA affects them. Contact us to learn more.

 

US Renunciation

The tax world has changed a lot in recent years. It’s important to be aware of the vehicles that can cause potential taxation pitfalls.

Avoid

US Limited Liability Companies (LLC) and Revocable Living Trusts (RLT)

LLCs are generally taxed as partnerships in the US, but are taxed as corporations in Canada. This causes potential double taxation, a “taxable benefit” for Canadian income tax purposes, and higher overall income taxes. RLTs are not necessarily ignored for Canadian tax purposes, which can also result in potential double taxation.

US LLLPs

The Canada Revenue Agency (CRA) has not ruled on the Canadian entity classification of US Limited Liability Limited Partnerships (LLLP) and Limited Liability Partnerships (LLP), thus causing uncertainty on the Canadian tax implications of using such vehicles.

Gifting US real property

Gifts of US real estate are not eligible for pro rata unified credit utilization and are subject to gift tax at 40% of the value of the gift. In addition, the Canadian attribution rules mean you may also be subject to Canadian tax.

Joint Tenancy with Right of Survivorship 

When two (or more) people own a property as Joint Tenancy with Right of Survivorship, and one of the joint tenants dies, the entire property is passed to the survivor(s), and can result in double application of the US estate tax. 

Canadian corporations

Holding US real estate through a Canadian corporation can cause Canadian shareholder benefit issues, which can result in significant Canadian tax costs.

Consider

Life insurance and non-recourse debt

Life insurance can be a very simple and effective way to provide liquidity to cover your US estate tax liability arising on death. Financing the property with non-recourse debt is also an option that can reduce your US estate tax exposure. 

Superannuation

The Australian Superannuation fund is part of Australia’s national pension scheme and constitutes one of the pillars of Australian social security. The Super is a hybrid structure created under Australian law to encourage Australian workers to accumulate savings for retirement at preferential rates. The Super has no equivalent under US law. Its structure is so unique that the US Internal Revenue Service has yet to issue definitive guidance on how it should be treated for US tax purposes. This has resulted in confusion and sometimes misreporting, which may result in burdensome tax and reporting consequences.

Moodys has engaged in an open dialogue with the IRS and tax-writing committees of the US Congress to assist them in formulating a fair and workable classification of the Super for US tax purposes – one that avoids the possibility of double taxation. We strive to bring certainty of your US tax liabilities and reporting obligations to enable you to take appropriate steps to become compliant without the fear of incurring civil and criminal penalties.

 

US TAXATION OF THE SUPER

Generally, the Super pays Australian taxes on contributions and income at the rate of 15 percent. Under US tax law, US persons who are beneficiaries of a Super are also subject to US tax on this income, even if he or she does not have access to the funds. Unfortunately, the Australia-US tax treaty offers little relief for US persons who reside in Australia. The treaty does not address the US taxation of the income of a Super even though it should be treated similarly to a foreign national pension scheme. Consequently, a US person residing in Australia who is the beneficiary of a Super is in an uneasy confluence of both Australian and US tax laws.

SUPER REPORTING

Due to the lack of IRS guidance on how a Super is classified and taxed under US tax law, there has been confusion on how to properly report Supers. This is not the case with US persons living and working in Canada, Hong Kong, India, Ireland, Israel, Netherlands, New Zealand, Singapore, the United Kingdom, and other countries that have updated tax treaties that exempt similar pension schemes from US taxation. A Super should be reported for US tax purposes in a manner that is consistent with its true nature without having to bear the punitive and costly tax consequences of doing so.

Our team of experienced US lawyers and Certified Public Accountants can provide clarity on this complex topic. We’ll walk you through every step of the reporting process to ensure you become fully compliant with your US tax obligations and reporting requirements without having to sacrifice your financial future to do so.

Contact us to learn more.

News

Blogs

Media Coverage

  • Alexander Marino is quoted in an article by The Canberra Times entitled “Tax fears: US-Aussie dual citizens provide IRS with details of $184 billion, March 03, 2018, The Canberra Times and The Sydney Morning Herald

  • Moodys is quoted in an article entitled, “SMSFs warned on new IRS compliance campaign,” November 12, 2017, SMSF Adviser
  • Moodys is mentioned in an article entitled, “US citizens renouncing because of tax laws affecting Australian superannuation,” September 11, 2016, Sydney Morning Herald

 

Tax well solved.™

Moodys is home to an integrated team of Canadian and US lawyers and accountants that ensure you’re covered from every angle, no matter how unique your tax situation. We design a tax strategy tailored to you and implement solutions that make complexity irrelevant, no matter where you live in the world.

Canada and Australia possess a kinship as part of the Commonwealth that includes a similar history and legal system, and US persons in Australia face US tax issues that are similar to those faced by US persons in Canada. That’s where Moodys comes in. Whether you’re looking to learn more about the US tax implications of your Australian Superannuation fund, how the Foreign Account Tax Compliance Act affects you, or considering renouncing your US citizenship, read through this knowledge portal to see how we can help, or contact us to find out more.