AU-USA Tax Treaty - Am I Eligible?

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  [Deactivated] on 31/10/2018 - 19:09

  I'd be more worried about the IRS than the ATO coming after you for foreign investments.

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    freshofftheplane on 31/10/2018 - 19:28

    In this case I think you're right, but there must be a definite answer, I just can't figure it out!

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  Delphinus on 01/11/2018 - 01:14

  +1

  Sounds like you should see an tax professional about this, but here's how I see it:

  You have assessed that you are a temporary Australian resident (not a full Australian resident given the link you've provided). The tax treaties on Treasury's page simply tells you what to do in the situation that you are an Australian or US resident.

  You mentioned both CGT and revenue on foreign investments. I'm going to take 'revenue on foreign investments' as dividends seeing as you mentioned stocks, and CGT meaning when you sell the stocks and realise a gain.

  For dividends, Article 10 paragraph 1-2 of the treaty essentially says that dividends paid by a US company and received by an Australia resident is taxed in Australia. But it may also be taxed up to 15% in the US according to their domestic laws (assuming you own less than 10% voting power in the dividend-paying US company - otherwise it's capped at 5% instead).
  From the Australian perspective, it seems like temporary Australian residents don't pay tax on US dividends received: https://www.ato.gov.au/individuals/tax-return/2018/in-detail…
  From the US point of view, they still can tax those dividends according to their local laws, but up to 15% (or 5%).

  In relation to CGT, under the revised Article 13, unless some special rules apply to you (such as a change in residency), capital gains are taxed per each country's domestic laws.
  From the Australian perspective, as you said, you are only subject to CGT on 'taxable Australian properties'.
  The gain you get from selling stocks would then also be taxed in the US according to their laws. In the situation there is a double taxation happening, you'd likely get some sort of credit in Australia to recognise the tax you've already paid in the US.

  I'm not 100% sure what the dividend tax withholding you've referred to is, because I don't really know how the US tax system works.

  Hopefully the above info helps a little :)

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    freshofftheplane on 01/11/2018 - 18:32

    Thanks for your comment :)

    The dividend tax that I'm referring to is that 15% that Australian residents pay due to the tax treaty (which is a reduced rate from the normal 30%)
    I'm still not convinced I can actually claim the tax treaty if I'm exempt for paying local taxes for these same gains

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      Delphinus on 01/11/2018 - 19:47

      Hey, happy to help out!

      Hmm, not sure where the treaty says Australian residents pay 15%, because if you are a temporary Australian resident, you don't need to pay tax on dividends you get from the US.

      I think what you might be seeing is the treaty saying the US will tax you up to 15%. You will pay tax to the IRS and that will be the end of it.

      This changes if you were a full Australian resident, because then the following would likely happen:
      1. You pay ~30% tax (depending on how much you earn) on dividends from the US to the ATO.
      2. You pay up to 15% tax on dividends from the US to the IRS.
      3. You claim the 'up to 15%' tax you double paid as an offset in Australia, reducing the amount of tax you have to pay to the ATO by the amount of the tax you paid in the US.

      This is in contrast to you being a temporary Australian resident, where only 2. from the list above would happen.

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        freshofftheplane on 01/11/2018 - 19:55

        Right, I'm only referring to the 15% or 30% pay to the IRS, depending or whether I'm eligible to claim the tax treaty for Australian residents.
        I guess this bit, "Article 4" on "Residence" from the treaty document threw me a bit off:

        (1) For the purposes of this Convention:

        (a) a person is a resident of Australia if the person is:

        (i) an Australian corporation; or

        (ii) any other person (except a company as defined under the law of Australia relating to Australian tax) who, under that law, is a resident of Australia,

        provided that, in relation to any income, a person who:

        (iii) is subject to Australian tax on income which is from sources in Australia; or

        (iv) is a partnership, an estate of a deceased individual or a trust (other than a trust that is a provident, benefit, superannuation or retirement fund, or that is established for public charitable purposes or for the purpose of enabling scientific research to be conducted by or in conjunction with a public university or public hospital, the income of which is exempt from tax under the law of Australia relating to Australian tax),

        shall not be treated as a resident of Australia except to the extent that the income is subject to Australian tax as the income of a resident, either in the hands of that person or in the hands of a partner or beneficiary, or, if that income is exempt from Australian tax, is so exempt solely because it is subject to United States tax; and

        (b) a person is a resident of the United States if the person is:

        (i) a United States corporation; or

        (ii) any other person (except a corporation or unincorporated entity treated as a corporation for United States tax purposes) resident in the United States for purposes of its tax, provided that, in relation to any income derived by a partnership, an estate of a deceased individual or a trust, such person shall not be treated as a resident of the United States except to the extent that the income is subject to United States tax as the income of a resident, either in its hands or in the hands of a partner or beneficiary, or, if that income is exempt from United States tax, is exempt other than because such person, partner or beneficiary is not a United States person according to United States law relating to United States tax.

        (2) Where by application of paragraph (1) an individual is a resident of both Contracting States, he shall be deemed to be a resident of the State:

        (a) in which he maintains his permanent home;

        (b) if the provisions of sub-paragraph (a) do not apply, in which he has an habitual abode if he has his permanent home in both Contracting States or in neither of the Contracting States; or

        (c) if the provisions of sub-paragraphs (a) and (b) do not apply, with which his personal and economic relations are closer if he has an habitual abode in both Contracting States or in neither of the Contracting States.

        For the purposes of this paragraph, in determining an individual's permanent home, regard shall be given to the place where the individual dwells with his family, and in determining the Contracting State with which an individual's personal and economic relations are closer, regard shall be given to his citizenship (if he is a citizen of one of the Contracting States).

        (3) An individual who is deemed to be a resident of one of the Contracting States for any year of income, or taxable year, as the case may be by reason of the provisions of paragraph (2) shall, for all purposes of this Convention, be deemed to be a resident only of that State for such year.

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          Delphinus on 01/11/2018 - 20:11

          @freshofftheplane: Ah, well Article 4 only tells you how to determine whether you are an Australian or US resident. For the purposes of the treaty, you've said you're an Australian resident. Therefore, the US has reduced taxing rights over your income, as they're leaving it mostly up to the Australian tax system. So yes, on the face of it, I would say you could use the 15% even if you didn't pay any tax locally.

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            freshofftheplane on 01/11/2018 - 20:14

            @Delphinus: thank you :)

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  Geekomatic on 01/11/2018 - 18:26

  You'll want to avail yourself of the information here.

  https://www.facebook.com/groups/FixTheTaxTreaty/?ref=group_b…

  You might also have a read at:

  http://isaacbrocksociety.ca/

  Good luck to you.

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    freshofftheplane on 01/11/2018 - 18:28

    Negative, I'm definitely not a US citizen