As an Australian tax resident, you probably feel that how the US imposes tax on its citizens does not concern you. The reach of the US tax department might be further than you think.
The United States is one of only two countries in the world to tax its citizens with little regard as to where they reside (the other being Eritrea). If one of your parents was a US citizen, or if you held a green card for more than 3 years without physically returning the paper upon leaving the country, you might be subject to US tax. If you are a US citizen, the US will definitely want to tax you. Whether you currently, or even ever, lived in the US is actually irrelevant.
If you are caught under US taxation, this could mean you have additional tax lodgment responsibilities and also (potentially) additional tax to pay.
In 2015, the ATO and the IRS signed a Competent Authority Arrangement to help implement the provisions of the US Foreign Account Tax Compliance Act (FATCA). Under this agreement, most financial institutions are required to register with the IRS and report to the ATO each year about certain financial accounts held with them by US citizens, US tax residents, and specified US entities established in the US or controlled by US persons.
The ATO make this information available to the IRS. The data is used to track down those that are not lodging income tax returns. Potential penalties imposed by the IRS can be substantial, and in many cases may exceed the actual tax payable, so coming clean with them before they start taking action is often the best policy.
While we cannot provide you with US tax advice, we can work with our colleagues within the Kreston International network to ensure both your compliance and longer-term strategies are secured.
So, before you plan your next trip to the US, maybe give us a call and to check on your situation. Nothing ruins a trip like being detained at customs for tax evasion!
Correct as of 26 February 2021
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