The Reach of the US Tax System: Implications for Australian Tax Residents
If you are an Australian tax resident, you may not think the US tax system affects you, but it’s essential to note that the US tax department’s jurisdiction can extend beyond its borders. This article highlights key aspects of the US tax systems that could impact Australian tax residents and emphasises the importance of consulting a tax advisor who can help you navigate potential tax implications
The United States is one of only two countries in the world to tax its citizens with little regard for where they reside (the other being Eritrea). Therefore, 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 obligations. If you are a US citizen, the US will want to tax you. Whether you currently, or even ever, lived in the US is irrelevant.
If you are caught under US taxation, this could mean you have additional tax lodgment responsibilities and also (potentially) additional tax to pay.
Understanding FATCA
In 2015, the ATO and the IRS signed a Competent Authority Arrangement to help implement the US Foreign Account Tax Compliance Act (FATCA) provisions. Under this agreement, most financial institutions must register with the IRS and report to the ATO each year about certain financial accounts held 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.
Collaboration with Kreston International Network and Tax Advisors
While we cannot provide US tax advice, we can work with our colleagues within the Kreston Global network to ensure your compliance and longer-term strategies are secured. Kreston Global is a global network of independent accounting firms that can offer specialised guidance on various international tax matters, including US taxation.
Before planning your next trip to the United States, it is advisable to consult with tax advisors to assess your individual situation and understand any potential US tax implications. Failing to address tax obligations properly can lead to significant inconveniences, such as being detained at customs for potential tax evasion. By seeking professional advice from tax advisors, you can ensure that your tax affairs are in order and mitigate any risks associated with non-compliance.
If you have any queries or you’d like to check on your situation, call us. Nothing ruins a trip like being detained at customs for tax evasion!
Kreston Stanley Williamson Team
*Correct as of February 2021
*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas in this article, you must seek specific advice relating to your particular circumstances. Liability is limited by a scheme approved under professional standards legislation.
