Category Archives: Australia Superannuation

How US Tax Treaties And The “Saving Clause” Prevent Countries From Establishing Retirement Programs For US Citizen Residents

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Prologue – The Circumstances Of Your Birth Should Not Determine The Outcome Of Your Life …

The above tweet references a “human interest” story where US citizen children are denied benefits in their country of residence that are available to all people who are NOT US citizens.

The description includes:

New Zealand children born to parents’ who are citizens of the United States face a difficult KiwiSaver choice: Give up your US citizenship, or face a KiwiSaver tax compliance bill of $750​ or more a year courtesy of the US taxman.

A petition has been started at Parliament asking MPs to change the KiwiSaver Act to allow people with KiwiSaver accounts facing the unreasonable demands from US tax authorities to close their KiwiSaver accounts.

The issue surfaced as a result of the plight of Auckland dual national Kira Bacal and her four New Zealand-born children, Harper, 13, Rowan, 10 and twins Malachi and Elias, 8.

It appears that the poor (New Zealand born) Bacal children are finding that the US (or at least US tax preparers in New Zealand) consider their KiwiSaver to be a possible vehicle for US tax evasion! Not only is the KiwiSaver a “trust”, but it’s a “foreign trust” which comes with all kinds of penalty laden reporting obligations and no tax advantages. An excellent analysis of the US tax implications of the New Zealand KiwiSaver is here. The story is somewhat comical in that one gets the feeling that the blame should be placed on New Zealand (and not the United States) for New Zealand’s failure to legislate special exceptions for US citizens living in New Zealand.

So what! They’re Americans and therefore they deserve it (you say)!

A previous post explained that for Americans abroad, changes in the laws of their country of residence can change their tax relationship with the United States. The purpose of this post is to expand on that theme by demonstrating that:

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Eroding the tax base of other countries by imposing direct US taxation on the residents of those countries

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This is the fourth of a series of posts about international tax reform generally and how FATCA, CRS, citizenship-based taxation, GILTI, etc. work together.

The first three posts were:

US Tax Treaties Should Reflect The 21st Century And Not The World Of 100 Years Ago

The Pandora Papers, FATCA, CRS And How They Have Combined To Create Tax Haven USA

How The World Should Respond To The US FATCA Driven Attack On The Tax Base Of Other Countries

This fourth post continues where the third post – How The World Should Respond To The US FATCA Driven Attack On The Tax Base Of Other Countries – left off. That post described in a general way that FATCA facilitated the US taxation of residents of other countries. The purpose of this post is to give a small number of important examples. To repeat:

The imposition of FATCA on other countries means that …

The United States has effectively expanded its tax base into other countries by claiming residents of other countries as US tax residents. This is a direct attack on and the erosion of the tax base of those other countries.

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Part 9 of series: How do US Tax Rules Constrain the Investment Choices of US Taxpayers Living in Australia?

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Before moving to the post, if you believe that Americans abroad are being treated unjustly by the United States Government: Join me on May 17, 2019 for a discussion of U.S. “citizenship-based taxation” as follows:

You are invited to submit your questions in advance. In fact, PLEASE submit questions. This is an opportunity to engage with Homelanders in general and the U.S. tax compliance community in particular.

Thanks to Professor Zelinsky for his willingness to engage in this discussion. Thanks to Kat Jennings of Tax Connections for hosting this discussion. Thanks to Professor William Byrnes for his willingness to moderate this discussion.

Tax Connections has published a large number of posts that I have written over the years (yes, hard to believe it has been years). As you may know I oppose FATCA, U.S. citizenship-based taxation and the use of FATCA to impose U.S. taxation on tax residents of other countries.
Tax Connections has also published a number of posts written by Professor Zelinsky (who apparently takes a contrary view).

This is post 9 in my series leading up to the May 17 Tax Connections discussion. The first eight posts have been for the purpose of demonstrating:

– in posts 1 to 4, Laura Snyder did a wonderful job in explaining how the U.S. tax system impacts the lives of Americans abroad. Her specific focus was on those individuals who identify as being U.S. citizens

– in post 5, I extended the discussion to reinforce that what the U.S. calls “citizenship-based taxation” is actually a system that impacts far more than those who identify as being U.S. citizens. In fact it burdens every individual on the planet who can’t demonstrate that he is a “nonresident” alien (people are renouncing U.S. citizenship because they can save themselves ONLY if they become a “nonresident alien”).

– in Post 6, I added the thoughts of Toronto Tax Professional Peter Megoudis who explained how those who are connected to “U.S. persons” (through family or business arrangements) can be impacted by the U.S. tax system

In Post 7, I extended the analysis to explain that:

1. Not only does the United States impose worldwide taxation on individuals who don’t live in the United States; but

2. The system of worldwide taxation imposed is in reality and separate and far more punitive collection of taxes than is imposed on Homeland Americans.
Think of it! With the exception of the United States, when a person moves away from the country and establishes tax residency in another country, they will no longer be taxed as a resident of the first country.

But in the case of the United States: If a U.S. citizen moves from the United States and establishes tax residency in a new country: (1) he will STILL be taxable as a tax resident of the United States (2) he will be subjected to a separate and more punitive system of taxation! (3) he will have to engage in financial planning according to the rules of the tax system where he resides. #YouCantMakeThisUp! I recently discussed this on Quora as follows …

Read John Richardson's answer to What would I, as an American citizen, need to do to manage my finances (such as an investment portfolio) if I decided to move to Canada? What pitfalls await? on Quora

We will now see how being subject to the U.S. tax system disables the individual, from being able to engage in the normal financial planning, that is optimal under the tax system where he resides. In effect, he will lose the tax benefits which are available to “non-U.S.” residents of his country of residence. The biggest cost of this is NOT the additional tax. The biggest cost is the opportunity cost of being disabled from normal financial planning. A discussion of “lost investing opportunity” in Canada is here.

Dr. Karen Alpert will now explain how the “loss of opportunity” works in an Australian context.

Australia – A Study
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The "proper care and feeding of the Green Card": Tax Planning for the #GreenCard before coming to America

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Introduction – Where this post came from …

In July of 2018 I moderated a discussion on “tax residency”. The discussion was at an immigration conference in Los Angeles that was primarily focused on the EB-5 program. The EB-5 program will lead to a Green Card (meaning that one becomes a permanent resident of the United States).

Here is a video of the discussion. Some parts are audible and others not. But, I decided to create a post which focuses on the issues discussed.

Introduction to the world of Global Mobility

Global mobility is the norm in the 21st century. The United States, Canada and Australia are prime destinations for those seeking “permanent residency” and ultimately a second “citizenship”. Canada has been a pioneer in investor immigration. The United States has long been an area of prime interest. It is important to distinguish between “residency” for immigration purposes (are you legally allowed to live in a country) from “residency” for tax purposes (to what extent are you subject to taxation in the country).

Once you have become a “permanent resident” under the immigration laws, you will have become a “tax resident” under the tax laws. Tax residency in a CRS and FATCA world has become increasingly important. I have previously discussed OECD definitions of tax residency.

There are many “citizenship and/or residency by investment” programs. One example is Portugals’s Golden Visa Program.

The purpose of this post is to create awareness of some aspects of what it means to become a “tax resident” of the United States. When a non-citizen becomes a U.S. “permanent resident” (for immigration purposes), one becomes a “tax resident” of the United States. Once a “tax resident” of the United States (1) very specific procedures must be followed to sever “U.S. tax residency” and (2) “long term residents” will be subject to the S. 877A Exit Tax rules.

If you are a “tax resident” of a country, it is important to understand the tax rules. This is particularly true when considering becoming a “permanent resident” and “tax resident” of the United States.
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Part 3: Responding to the Sec. 965 "transition tax": They hate you for (and want) your pensions!

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Introduction
This is the third in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.
The first two posts were:
Part 1: Responding to The Section 965 “transition tax”: “Resistance is futile” but “Compliance is impossible”
Part 2: Responding to The Section 965 “transition tax”: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”
Those who fail to learn from history are doomed to repeat it
Immediately prior to the passing of President Obama’s “Affordable Care Act” (which was subsequently ruled to be constitutional BECAUSE it was a “tax”), legislators were faced with a comprehensive, complex and incomprehensible piece of legislation. Very few members of Congress understood the details and impact of what they were voting for.


Nancy Pelosi secured her in place of history by suggesting that:
“We really need to pass the law so that you can see what’s in it!”
Ms. Pelosi meant (I think) that it’s one thing to know what a law says. It’s quite another to know how it actually impacts people.
Notwithstanding the April 15, 2018 deadline for the first “transition tax” payment, very few “tax professionals” understand what the Internal Revenue Code Sec. 965 “transition tax” says, (let alone what it actually might mean – assuming it applies).
What the application of the “transition tax” might actually mean in the life of an individual owner of a Canadian Controlled Private Corporation
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Tax, culture and how the USA uses #citizenshiptaxation to impose US culture (and penalties) on other countries

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Civilizations and countries define themselves in part by their tax policies
In 1993 Samuel Huntington wrote “The Clash Of Civilizations“. His basic thesis is captured in the following paragraph from Foreign Affairs Magazine.

World politics is entering a new phase, and intellectuals have not hesitated to proliferate visions of what it will be-the end of history, the return of traditional rivalries between nation states, and the decline of the nation state from the conflicting pulls of tribalism and globalism, among others. Each of these visions catches aspects of the emerging reality. Yet they all miss a crucial, indeed a central, aspect of what global politics is likely to be in the coming years.
It is my hypothesis that the fundamental source of conflict in this new world will not be primarily ideological or primarily economic. The great divisions among humankind and the dominating source of conflict will be cultural. Nation states will remain the most powerful actors in world affairs, but the principal conflicts of global politics will occur between nations and groups of different civilizations. The clash of civilizations will dominate global politics. The fault lines between civilizations will be the battle lines of the future.

Tax policy and the possible “clash of civilizations”
To what extent does the insistence of the USA on imposing the Internal Revenue Code (“citizenship-based taxation”) on the citizen/residents of other countries, foreshadow a “clash of civilizations”?


This post was motivated by the article by Virginia La Torre Jeker which is referenced in the above tweet. It is an excellent discussion of how the Internal Revenue Code might (or might not) accommodate the reality of Sharia law. The post raises many questions and alerts practitioners to the challenges of applying the Internal Revenue Code to the lives of people whose culture is largely outside the United States. The post raises many “technical issues”. I expect there will further discussion of this issue on Virginia’s blog.
Taxation does NOT exist in a cultural vacuum. A country’s tax system reflects the counry’s cultural values. As the tax historian Charles Adams has noted, the rise and fall of civilizations can be linked to its tax policies. To impose the Internal Revenue Code on people who live outside the United States is to export U.S. cultural values and impose those values on other nations. The United States claims the right to impose the Internal Revenue Code on U.S. citizens who live outside the United States. The reality is that there are millions of people with no connection to the United States (other than a place of birth). U.S. citizenship is acquired automatically if one has the fortune (or misfortune depending on your point of view) of having been (as Bruce would sing) “Born In The USA!”
FATCA and the tax compliance industry are working hard to identify those who may be U.S. citizens and do NOT live in the United States. What the United States views as a good source of tax revenue should be seen more broadly. Leaving aside basic issues of fairness, to impose U.S. taxation (according to U.S. rules/cultural values) on the residents of other countries, is sure to create problems. As part of tax reform, the United States must stop imposing the Internal Revenue Code on people who are NOT residents of the United States!
The following “Storification” is an attempt to explain the problem from an “outside the USA” perspective …
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US Taxation of the Australian Superannuation? – No, #DontMessWithTheSuper!

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I recently engaged in a discussion with people who are worried that they might be “U.S. Persons” living in Australia. Their primary concern (and understandably so) is the possible U.S. taxation of their Australian Superannuations. For many, the “Super” is considered to be their most important retirement planning asset.

In a FATCA world, where  possible “USness” is now an issue, one must consider whether U.S. tax laws, effectively disable a group of Australians from effective retirement planning. But, hey! Even Americans should have the right to plan for retirement? Shouldn’t they?

There have been a number of recent articles attempting to understand the possible U.S. taxability of the Australian Super. I don’t know whether this is good or bad.

Most of these articles (what would you expect?) attempt to analyze the issue from the perspective of U.S. law – specifically the Internal Revenue Code. Rightly or wrongly, this approach assumes that the USA has the right to impose taxation on the retirement plans created by other nations. I don’t believe that this should be assumed!

In any event, what follows is a presentation that I created to discuss this issue. It is NOT intended to be a legal analysis. (If you want trouble, call up a lawyer!) It is intended to be a “contextual” and “common sense” analysis. Sooner or later, all laws (if they are to survive) must move towards “common sense”.

My message to residents of Australia is this:

Your Superannuation is far too important to be left in the hands of the tax professionals!

You will find “my thoughts” by clicking on the following

The-Australia-Superannuation-For-Dummies-4

You will find “my thoughts” by clicking on the following:
The Australia Superannuation For Dummies

Feel free to leave “your thoughts” as comments to this post.

John Richardson Follow me on Twitter @Expatriationlaw