The “Super” reason Australians are renouncing their US citizenship – Moodys Gartner Tax Law

The “Super” factor Australians are renouncing

their US citizenship
Released on 14 March 2017|by Alexander Marino JD, LLM (US Tax).
Many US residents living in Australia and in other places all over the world have found themselves faced with the challenging choice of whether to keep or renounce their United States citizenship. A decade back, the concept of denying one’s United States citizenship was, for the majority of, unimaginable. Currently, nevertheless, record varieties of individuals quit every quarter, and numerous United States consulates are booking visits 18 months in advance. [1] While individuals select to renounce their US citizenship for lots of reasons, a typical reason Australian homeowners choose to do so is that of the lack of clear assistance on the US tax repercussions of Australian Superannuation funds (Super).

For those who are unfamiliar, a Superfund is a financial car in Australia that is established to offer a specific with income upon retirement. Like many federal governments that sponsor retirement programs, Australia encourages its residents to contribute to the funds by providing useful tax treatment for doing so. It is estimated that by mid-2015, Australians had over AUD 2.02 trillion in Super possessions. [2] For a nation with an estimated population of 24 million, this is substantial and is beginning to sound like a success story for numerous Australians in their retirement years. However, this is not the case for Australian locals who are likewise United States citizens. For an estimated US citizen population in Australia of over 90,000 (as of 2011) that is increasing, the Super postures issues. [3]
By way of background, it is essential to comprehend how the United States taxes its citizens. The United States is one of two nations on earth that taxes the worldwide earnings of its citizens, people, and foreign persons admitted as long-term residents. [4] Thus, United States residents throughout the world are taxed by Uncle Sam on all the income they make, no matter its currency, place earned, or if the US resident has ever set foot on US soil. The repercussion of this to the United States citizen living abroad is the concern, cost, and headache of meeting yearly IRS filing and reporting obligations. For a more comprehensive account of Internal Revenue Service reporting and filing responsibilities for US citizens resident in Australia, please recommendation: US residents residing in Australia– US tax filing commitments.

The severe effects of citizenship-based tax do not stop there. In addition to being taxed on around the world earnings, the United States likewise has an intricate tax reporting regime and also an estate and gift tax routine. [5] To complicate things even further, the application of the Foreign Account Tax Compliance Act (FATCA) [6] went into a full impact on July 1, 2014. FATCA was enacted to catch non-compliant United States taxpayers with funds situated abroad and has actually caused numerous sleep-deprived nights for United States person expats in Australia in anticipation of a notice from the IRS. In a press release, the Australian Tax Office stated:.

” From 1 July 2014, the Foreign Account Tax Compliance Act (FATCA) needs Australian banks to examine client accounts to figure out whether they are held by United States residents, US tax residents or United States entities (or in some cases non-US entities managed by US persons). Customers might be called by their banks (for instance, by letter) about verifying whether they are a US person, tax local or otherwise a United States individual [7]”.

As United States residents worldwide begin to comprehend how the IRS taxes United States residents and the manner in which they can now be found abroad through FATCA, the next rational step is to try to find a service. In doing so, the overarching question US residents residing in Australia and elsewhere are asking themselves is whether their “United States citizenship juice deserves the capture?” Simply put, do I genuinely require my US citizenship and, if so, what are the benefits? United States citizens who find themselves in this unenviable position are frequently mentally and economically drained after the process of becoming US tax-compliant, remaining United States tax-compliant, and continually preparing for cross-border United States estate and present tax concerns. [8] Not only can the filing and reporting expenses appear ludicrously costly and invasive, but the penalty routine for non-compliance can be rather dire if not addressed appropriately.

To make matters worse, after leaping through the hoops of becoming United States tax-compliant, numerous Australians recognize that they may owe United States tax due to their interest in a Super. The only thing worse than paying attorneys and accounting professionals to submit intricate cross-border United States tax returns is to have then to write a US dollar examine to the IRS. Add those elements to FATCA’s arrival in the transnational compliance celebration in 2014, and numerous US people residing in Australia have had enough. I have composed an in-depth article on if renouncing makes good sense for you and the many involved mistakes: Renouncing Your US Citizenship: Is Divorcing Uncle Sam Right For You?

Individuals who choose

to renounce their United States citizenship requirement to be familiar with the potentially unfavorable consequences of doing so and take actions to avoid them. The adverse effects can consist of the imposition of the United States exit tax [9], permanent inadmissibility from the United States, and the imposition of the inheritance tax. [10]
While outside the scope of this post, the complicated rules and phases of a Super under Australian law and the corresponding US tax and reporting obligations are common factors that drive Australians to relinquish their US citizenship. For additional info about the United States tax treatment of Super funds, please see Marsha-laine Dungog’s article: United States taxation of Australian superannuation funds: when the Super is NOT so very after all.

In the end, there is little doubt that US citizens living abroad, both in Australia and internationally, are renouncing in high numbers due to the results of US citizenship-based tax and FATCA. For the average US citizen living abroad, citizenship-based taxation creates issues with which numerous are no longer ready to contend. Add the unclear United States tax treatment of Super funds to the plate of problems facing US residents with an Australian connection, and it is clear why numerous have picked to leave the table.

Are you a United States expat living in Australia? Join us for an informative, complimentary webinar on

United States

citizenship renunciation.

[1] Names of all renouncers are published quarterly in the Federal Register. See (2009, 1534 in 2010, 1781 in 2011, 932 in 2012, 2999 in 2013, 3415 in 2014, 4279 in 2015, and 5411 in 2017).

[2] “Superannuation Stats.” The Association of Superannuation Funds of Australia.

[3] Australian Bureau of Statistics. 2011. Last accessed 22 July 2014.

[4] IRC § 7701( b)( 6 ). The legal, long-term homeowner, otherwise known as a “U.S. Green Card” holder.

[5] IRC § 2033 supplies that the gross estate of a decedent who was a resident or local of the U.S. at the time of their death, will consist of all of their possessions no matter where located. Residency for estate tax purposes is various than residency for income tax purposes. Residency for estate tax purpose is a domicile test, see, Treasury Laws § 20.0-1( b)( 1 ). Hence, a renounced person could still face estate tax exposure if considered domiciled in the U.S.

[6] The Foreign Account Tax Compliance Act enacted as earnings balance out arrangements of the Hiring Rewards to Restore Employment Act of 2010.


[8] USD 5,490,000 merged credit available in 2017 (Indexed for inflation). Estate tax rate of 40 percent.

[9] IRC § 877A.

[10] 8 U.S.C. § 1182( a)( 10 )( E)( 2011 ). (Any alien who is a previous person of the United States who officially renounces United States citizenship and who is figured out by the Attorney general of the United States to have actually renounced United States Citizenship to avoid taxation by the United States is inadmissible.).


Register for receive our blog site invites to educational events and industry updates.

Scroll to Top