Table of Contents
Australia - USA Tax Treaty
The Convention between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (more commonly called the Australia / US Tax Treaty) was signed in 1982 and took effect in October 1983. A protocol amending the treaty was signed in 2001 and took effect in 2003.
Some useful links:
- Explanatory Memorandum (Income Tax (International Agreements) Amendment Bill 1983)
- Explanatory Memorandum (International Tax Agreements Amendment Bill (No.1) 2002)
treaty - general article about how the treaty works and major flaws
other articles about treaty negotiation or australia-specific US tax problems that must be addressed in the treaty.
Model Tax Treaties
Tax treaties are very complex. Most treaty negotiations start with a model treaty that is then modified to suit the specific situation. In 2016 the US issued a new model treaty. Relevant documents:
The OECD also has a model tax treaty, issued in 2014 and available here.
The US practice of CBT often results in Double Taxation despite some mitigation mechanisms that are in place. The following page covers double taxation further, discusses the ethics and provides examples.
Totalisation (Social Security) Agreement
In 2001, Australia and the United States entered into an agreement, commonly called a Totalisation Agreement, for the purpose of avoiding double taxation of income with respect to social security taxes. Further information can be found here:
Savings Clause, a key element of almost all US Tax Treaties, allows or saves the right of each country to tax its citizens or residents as if the rest of the terms of the tax treaty did not exist. However, individual treaties may allow some exemptions to the tax treaty.
The Saving Clause allows the US to reach into the Australian tax base and tax the Australian source income of Australian resident taxpayers. This erodes the ability of the affected US Persons to take advantage of Australian public policy and tax breaks encouraging retirement savings and local investment.
Karen wrote a 3-part blog explaining how the Savings Clause impacts tax treaties:
Clearly, the Savings Clause will be a key issue that must be addressed in any future tax treaty renegotiation if Australia is to protect their tax base from the exceptional US practice of Citizenship Based Taxation.