Were you born overseas or are you a citizen or tax resident of another country? If yes, you may have to pay tax in both Australia and overseas.
You should also consider whether financial information about your Australian bank accounts and investments is being reported to the U.S. Internal Revenue Service, or other Tax Authorities in the OECD, pursuant to FATCA and CRS.
We have recently been approached by clients—who were either born overseas or are citizens or tax residents of other countries—to advise on the implications of the U.S. Foreign Account Tax Compliance Act (FATCA) and the OECD Common Reporting Standard (CRS).
The clear aim of the FACTA and CRS rules is to report potentially undeclared income to the U.S. Internal Revenue Service and the Tax Authorities of other OECD countries.
This is because a number of countries, including Australia, tax their residents on their worldwide income; while some countries (principally the U.S.) tax their citizens on their worldwide income—even if they have been living overseas for a number of years.
Under the FATCA, financial institutions—including Australian banks—are required to provide to the U.S. Internal Revenue Service the details of financial accounts held by U.S. citizens, U.S. tax residents and U.S. controlled entities, outside of the United States.
Individuals who are U.S. citizens or U.S. tax residents may therefore have their Australian financial accounts and details reported to the IRS. That may have significant implications for individuals who haven’t complied with their U.S. tax filing obligations—given U.S. citizens must lodge U.S. tax returns, even if they reside outside the U.S., and even if they have lived away for a substantial period of time!
Under the CRS, member countries of the OECD are similarly obliged to exchange information regarding financial accounts to the Tax Authorities in other countries.
We have been consulted by a number of individuals from Asia, Australia, Europe and the Middle East who have received questionnaires or inquiries from financial institutions regarding their tax residence. The implications of the questionnaires and inquiries need to be considered very carefully—especially if you are then contacted by the Tax Authority of an overseas country which believes you are a resident or citizen of their country and should be paying tax.
For a confidential discussion regarding your potential tax obligations, and the implications of disclosure under FACTA and CRS, please contact our tax team.
This Alert is intended as general information only. It does not purport to be comprehensive advice or legal advice. Readers must seek professional advice before acting in relation to these matters.
