US Tax

The United States is unique in taxing long-term non-resident “US Persons” on their worldwide income under the same rules that apply to resident taxpayers. This tax applies to US citizens AND legal permanent residents (greencard holders) until they formally abandon their US status (turning in a green card by submitting Form I-407 or relinquishing US citizenship). Of course, the non-resident US person almost certainly lives in a country with taxes of its own (not always income taxes), and the tax system of the resident country will not tax exactly the same income items as the US does. So, while the US will allow a credit for income taxes paid to the resident country, there are always some gaps or areas of double taxation. This is especially true when it comes to any tax-deferral allowed by the resident country, such as tax-deferred retirement plans. Furthermore, the US tax system is quite xenophobic, treating any non-US managed investment, corporation, or trust as if its main purpose were to avoid US tax.

Andrew Grossman, a retired US Foreign Service Officer and member of the New York Bar, has written an extremely comprehensive resource on citizenship-based taxation: FATCA: Citizenship-Based Taxation, Foreign Asset Reporting Requirements and American Citizens Abroad

Additionally, the Isaac Brock Society maintains a page on Introductory and Essential Material on CBT, FATCA, Citizenship Issues that also has the Grossman paper as well as links to other resources.

Content ideas: note that some of the pages below do not exist yet. If the link is red, the page must be written - if you have something to contribute please become an editor! If you write one of these pages, please move the link to a separate section and provide a brief summary (like Exit Tax below).

• Citizenship Based Taxation
• PFICs (Passive Foreign Investment Companies)
• NIIT (Net Investment Income Tax)
• Controlled Foreign Corporations
• Foreign Trusts
• Income not taxed in Australia, but taxed in the US
• penalties
• renunciation / expatriation
• other articles about how US CBT works (not necessarily specific to Australia)

Note about voting in the US: US States must allow overseas voters to vote for federal office via absentee ballot and voting cannot be used to determine that a person is resident in that state for income tax. See 52 USC Chapter 203 (sections 20301 - 20311)

In 2008, the US legislated (as part of the unrelated Heart Act to increase benefits for veterans and survivors of deceased veterans) that an Exit Tax would be applied to qualifying US citizens, termed Covered Expats, who choose to renunciate their US citizenship.

The Exit Tax is based on as if you had sold all of your assets the day before expatriation.

Whether you are a deemed a Covered Expat depends on three tests: 1) Average income over the past five years, 2) Net Worth, and 3) Tax filing compliance.

More on the Exit Tax here:

• Exit Tax

Submissions to previous Congressional committee hearings can be found here.

Proposals to fix the US system of Citizenship Based Taxation have been advanced by the overseas arms of both of the major US political parties. Information on those proposals can be found here:

• Tax Reform Proposals

An interesting discussion of the Revenue Rule and how international law could limit the ability of the IRS to enforce collection of US tax overseas can be found here

This section contains cross references to other wiki pages that are related to US taxation.

Self-Employment Tax: The US applies a self-employment tax on net self-employment earnings to cover Social Security. Australia has an agreement in place with the US that exempts Australian resident US taxpayers. This agreement also coordinates Social Security coverage between the two countries. See the Totalisation Agreement page.