In our increasingly globalised world, more professionals are seeking to understand the advantages of dual citizenship. For expatriates, understanding the benefits and nuances of dual citizenship can open doors to new opportunities, enhancing their personal and professional lives.

This article explores the key benefits of being a dual citizen and considers specific examples of dual citizenship with Australia.

What Is Dual Citizenship?

Dual citizenship, also known as dual nationality, is a legal status that allows an individual to be a citizen of two countries simultaneously. This means that the person enjoys the rights and obligations of citizenship in both nations. The concept of dual citizenship can vary significantly between countries, with some nations fully embracing it and others having more restrictive policies.

Citizenship differs from residency in that citizenship refers to your legal status as belonging to a particular country, while residency refers to your status as a person living in a particular country.

How Does An Individual Become A Citizen?

The rules for citizenship differ from country to country, however they typically require some form of significant connection with the country you are applying to be a citizen of.

In some cases, being born in a country will automatically confer citizenship rights to you. This is the case in around 30 countries, including the US, Fiji, Jamaica, Argentina, Brazil, Canada, Costa Rica, Cuba, Mexico, Peru.

However, in many countries, including Australia, the UK, and Singapore, at least one parent must be either a citizen or permanent resident at the time of the child’s birth for citizenship to automatically apply to a child born in that country. For individuals born in the UAE they must be a member of a family of long-term Arab settlers in the UAE, or from an Emirati parent.

Citizen by descent may apply automatically or it may require an application to become a citizen of the parent’s country by an individual when they are born outside of that country.

In addition to citizenship by birth and descent, depending on the rules of the relevant country, individuals may apply for citizenship through adoption, naturalisation, migration, marriage, military service, or other special rules.

Key Benefits Of Dual Citizenship

The benefits of having dual citizenship typically relate to the ease of travel and ability to obtain support in the relevant countries.

The key benefits of being a dual citizen include:

1. Increased Mobility

Dual citizenship provides the freedom to travel and live in two countries. This can be particularly advantageous for either personal or professional reasons, allowing for more flexibility and fewer visa restrictions. For instance, you may live in one country with your family, while being required to travel frequently to another country for work requirements. Having citizenship in both countries means you can travel between the two countries without restriction or the need to meet onerous requirements.

2. Expanded Work Opportunities

Holding dual citizenship often opens up broader job markets. Since most countries require work visas for non-citizens to be eligible to work in the country, being a citizen removes these barriers to working in the relevant countries. For example, a dual citizen of Australia and the UK can work in both countries without needing work visas. Being a dual citizen of the UK and USA, likewise means that the individual can work in both the UK and the USA.

3. Access To Social Services

Citizens of multiple countries may benefit from social services and welfare programs in each country. This can include healthcare, education, and social security benefits. Having access to these benefits ensures that the individual is afforded protection or support during unexpected crises, without having to travel back to a home country.

4. Educational Opportunities

Dual citizens often have access to educational institutions and scholarships in both countries, which may not otherwise be available. This can provide a wider range of academic options and potential for educational advancement.

5. Property Ownership

Some countries have restrictions on foreign property ownership. Dual citizenship can circumvent these restrictions, allowing individuals to invest and own property in both nations.

6. Cultural And Family Ties

For those with family roots or cultural connections in another country, dual citizenship can strengthen ties and facilitate easier travel to visit relatives or engage with cultural heritage.

Disadvantages Of Dual Citizenship

1. Complex Taxation

If having dual citizenship means you are either residing in dual countries or receiving income from dual countries, this will come with taxation obligations in multiple countries. Managing taxes in two countries can be complex and requires careful planning to minimise taxation concerns.

Some countries, such as the USA, tax citizens regardless of where they live. This means that anyone with dual citizenship that includes US citizenship, will face additional taxation complexities when residing outside of the US.

2. Legal Obligations

Dual citizens must adhere not just to the laws, but also the obligations of both countries. This can include significant obligations such as military service requirements or other legal duties, which might vary between the two nations.

3. Political And Diplomatic Issues

Depending on how similar or dissimilar the countries are, navigating political or diplomatic issues can be challenging when holding dual citizenship. Conflicting laws, policies or cultural expectations may arise, requiring careful management.

Due to such issues dual citizens may also face restrictions in some countries for eligibility for certain positions such as political representatives. If such positions are in your career path you may be required to forgo citizenship in the second country.

4. Potential For Conflicting Loyalties

In times of political tension or conflict, dual citizens may find themselves in situations where their loyalties are questioned or tested, particularly if their role, position or advocacy stance requires specific country or cultural loyalties to be paramount.

Specific Dual Citizenship Scenarios For Australians

In most countries you may be a dual citizen; UK, USA, Australia, Canada, New Zealand, amongst them.

Conversely there are only a few countries that do not support dual citizenship. This means you automatically lose any other citizenship upon acquisition of citizenship of another country. The countries that do not currently support dual citizenship include Congo, Cuba, Ethiopia, India, Indonesia, Iran, Japan, Kuwait, Djibouti, Kazakhstan, Monaco, Singapore, Oman, Qatar, Saudi Arabia, Nepal, Mozambique and Zimbabwe.

a) Australia And The UK

Australians and Brits share a long history of cultural and economic ties. This means dual citizenship between Australia and the UK offers significant benefits, including the ability to live and work freely across the UK and Australia. The common legal frameworks and mutual agreements also facilitate easier movement and integration.

b) Australia And The US

Dual citizenship with the US offers extensive opportunities, particularly in business and technology sectors. Despite the common language between Australia and the US there are sometimes significant regional differences in speech, cultural expectations, and legal systems. Citizenship in the US also comes with the added complexity of US taxation laws, which require dual citizens to file US tax returns regardless of where the individual resides.

c) Australia And Singapore

Singaporean law traditionally does not recognize dual citizenship. This requires individuals to choose one nationality only. There are compelling reasons to become a Singapore citizen if Singapore is your home base, however this must be weighed up with the disadvantages or restrictions of the single citizenship if you have your home base in Australia, are travelling extensively or otherwise residing in Australia.

d) Australia And The UAE

The UAE’s policies on dual citizenship are limited. Other than the flexibility these recent changes allow for certain expatriates, generally, the UAE requires individuals to choose one citizenship. In 2021 dual citizenship was opened in select situations, allowing foreign investors, professionals, special talents and their families to obtain citizenship under specific conditions, if nominated by government or royal courts. Australian citizens can benefit from the UAE’s economic opportunities if they are able to secure dual status.

e) Others

Other countries where Australians might consider dual citizenship include Canada, New Zealand, Asian, and European Union nations. Each has its own set of rules and benefits, often related to ease of travel, work opportunities, and access to social services.

Tax Considerations For Dual Citizens

For the most part it is tax residency, not citizenship, that determines where you pay income tax and which country has tax jurisdiction. Tax residency rules are different between countries, however they typically require you to be physically living in the country, and/or to be present in the country for a specific number of days. This means you may be a tax resident in a country that you are not a citizen of.

There are, however, some situations where citizenship will also impact your tax obligations. This may include: 

• Certain situations where your citizenship requires you to lodge a tax return in that country, regardless of your residency.
• The impact of citizenship when assessing tax residency.

For example, anyone with USA citizenship is required to file a US tax return, regardless of where they are living and whether they have any US source income. This means a US citizen who is living outside the USA will need to lodge at least two tax returns; a tax return in the country where they are a tax resident, as well as in the US. 

When it comes to determining tax residency, citizenship may be a factor in determining which country has taxing rights, particularly when it comes to a tie breaker situation. If you are living between two different countries and you have citizenship in both countries, this may make a tie breaker situation more difficult to determine.  

Since tax requirements can vary significantly between countries and assessing tax residency can be quite complicated, it is important to obtain up to date advice on your specific situation from a suitable international and local tax specialist. 

Summary

Dual citizenship offers a range of benefits, including increased mobility, expanded work opportunities, and access to social services. While there are some disadvantages, such as potentially complex taxation and legal obligations, the advantages often outweigh the drawbacks for many individuals. Specific scenarios, like those involving Australia and various other countries, highlight the diverse benefits and challenges associated with dual citizenship.

FAQs

i) What are the benefits of dual citizenship in Australia?

Dual citizenship in Australia typically provides enhanced travel flexibility, broader work and business opportunities, access to social services in both countries, and the ability to retain cultural and familial connections.

ii) Do you have to pay taxes in both countries with dual citizenship in Australia?

Citizenship does not typically mean the individual is automatically taxed on their income. The exceptions to this are some countries that tax non-resident citizens for a short time after they move abroad, and the USA, the Philippines, and Eritrea, which have various rules taxing all citizens, regardless of where they live. The US is the only country in the world that applies the same tax regime to all its citizens, regardless of their country of residence.

This means that for most Dual citizens, tax obligations will be dependent on their country of residence and the source of the individual’s income. Where an individual is liable for tax in multiple countries, international tax treaties and unilateral tax offsets help mitigate the risk of double taxation. It’s essential to consult with a tax professional to navigate these complexities.

iii) What are the pros and cons of dual citizenship?

Pros include increased mobility, access to a wider range of government support, services and opportunities, and the ability to maintain connections with multiple cultures.

Cons may involve complex legal and tax obligations, potential conflicts of loyalty, and navigating differing laws between countries. Certain countries do not allow dual citizenship or only allow it under restricted circumstances.

iv) Which countries does Australia allow dual citizenship with?

Australia permits dual citizenship with any country that also allows dual citizenship, including the UK, US, Canada, and New Zealand, among others. In fact you can have more than dual citizenship in Australia, provided it is legal with all relevant parties.

Dual citizens may lose their Australian citizenship only in extreme situations, such as if you fight against Australia in a war, fight for a terrorist organisation, or are sentenced to at least 6 years in prison for certain crimes.

If you wish to become a citizen of a country that does not allow dual citizenship then you are required to renounce your Australian citizenship. You are unable to renounce your Australian citizenship if you do not have another citizenship lined up.

v) Can you be a citizen in two countries?

Yes, many countries, including Australia, allow dual citizenship, though the specific rules and acceptance can vary from one country to another.

Some countries, including Australia, allow you to be a citizen in more than two countries.

vi) How many citizenships can you have?

The number of citizenships a person can hold varies by country. Some nations allow multiple citizenships, while others have strict limits. In Australia there is no specified limit to the number of citizenships you can hold simultaneously. It’s crucial to understand the laws of each country involved.

It is also important to consider specific situations in which you may be required to only hold one citizenship. For example, in Australia you cannot be a member of Parliament if you hold dual citizenship as you are expected to renounce any other citizenship to focus on your Australian connection and representation.

vii) How do I get a second citizenship?

Obtaining a second citizenship typically involves legal processes such as naturalisation, citizenship by descent, marriage or meeting special investment or talent programs. The requirements vary significantly by country and may include family connections, residency, language proficiency, professional skills and/or financial investments.

viii) Does the US allow dual citizenship?

Yes, the US allows dual citizenship. Dual citizens must adhere to the laws and obligations of both countries, and the US tax system requires them to file tax returns annually, even if residing abroad.

ix) What countries allow dual citizenship?

Most countries allow dual citizenship. Many countries allow fairly unrestricted dual (or multiple) citizenship, including Australia, Canada, the UK, France, and Germany. In many cases the only restrictions have to do with limiting a dual citizen’s ability to be a member of Parliament. However, some countries, such as the UAE, have significant restrictions, while others, such as Singapore, do not recognize dual citizenship at all. It is important to check specific country regulations.

x) How does dual citizenship work?

Dual citizenship allows an individual to be a citizen of two (or more) countries at the same time. This status provides access to the rights and privileges of both countries but also requires adherence to the laws and obligations of each.

In a major decision affecting the area of trust taxation in Australia, the Full Federal Court last week ruled in Bendel (Commissioner of Taxation v Bendel [2025] FACFC 15) that an unpaid present entitlement (trust entitlement) owed to a company beneficiary of a trust, cannot be treated as a form of financial accommodation and is therefore not considered to be a ‘loan’ as defined under Section 109D(3) of Division 7A of the Income Tax Assessment Act 1997.

This overturns the approach taken by the ATO in rulings and determinations relating to the issue which have been in place for over almost 15 years. 

The ATO has long considered that where a family trust confers an entitlement to income upon a company, that the company is taken to provide financial accommodation (a loan) to the Trust if the said company does not insist on being paid its trust entitlement.

The decision has positive implications for the management of family trusts which distribute all or part of their income to family owned companies. It has the potential to simplify tax compliance in this area  while maintaining the integrity of the tax system.

The Federal Court’s decision has brought into focus Subdivision EA of Division 7A which has long been sidelined. Subdivision EA applies to situations where a trust monies that are due to be paid to a corporate beneficiary is instead lent or paid out of the Trust to other beneficiaries, usually individual family members, or if such family members are forgiven debts that they owe the Trust. 

It is unclear whether there will be a High Court appeal in relation to the matter or whether the Government will respond by changing the law.

Arguably changes in the law should not be required since Subdivision EA already operates (if properly administered) to safeguard the tax system from the inappropriate accessing of company profits. That point has been unequivocally made by the Federal Court. 

Moving to the United States as an Australian expat is an exciting step, but it also comes with a range of financial and tax implications that can be confusing. 

One of the most significant concerns we encounter for Australians relocating to the U.S. is how their Australian superannuation is treated. Unlike other investments, superannuation has unique tax and reporting requirements that can significantly impact your financial position.

This article explores how your Australian superannuation is treated in the U.S., the disclosures and forms you need to file, the consequences of contributing to super while living in the U.S., and what happens when you access your super while residing in America.

How Is Your Australian Superannuation Treated In The U.S.?

Superannuation is a cornerstone of retirement planning for Australians, but once you move to the U.S., its classification under American tax law becomes complicated. 

The main challenge arises from the fact that the U.S. does not recognize Australian superannuation as a tax-deferred retirement account like a U.S. 401(k) or IRA. Instead, the U.S. views superannuation in one of two ways:

1. Foreign Trust – The Internal Revenue Service (IRS) may consider your super fund as a foreign grantor trust, subjecting it to complex U.S. tax and reporting requirements. This classification may lead to additional tax liabilities, particularly when earnings inside the super fund are realized.
   
2. Foreign Pension – In some cases, the superannuation fund may be classified as a foreign pension, which can offer a more favorable tax treatment. However, there is no definitive IRS guidance on this, leading to inconsistent application of tax rules.

Taxation Of Superannuation In The U.S.

Regardless of its classification, the U.S. generally taxes superannuation in ways that differ from Australian tax laws. While contributions and earnings may grow tax-free in Australia, the U.S. may tax contributions, earnings, and distributions differently. Key considerations include:

• Employer Contributions: Employer contributions to your super fund may be considered taxable income in the U.S. in the year they are made.
  
• Investment Earnings: Earnings within your superannuation fund, such as dividends and capital gains, may be subject to annual U.S. taxation, even if they are not distributed.
  
• Withdrawals and Distributions: The tax treatment of superannuation withdrawals varies, but in many cases, distributions may be taxed in the U.S. as ordinary income, even if they are tax-free in Australia.

The range of outcomes noted above depends on the type of superannuation fund you have.

Self Managed Superannuation Funds

For expats in the USA that have a ‘Self-Managed Superannuation Fund’ urgent attention is needed toward restructuring your Superannuation Fund BEFORE you move to the USA.

Remaining the Trustee of an Australian Superannuation Fund after you move to the US – even inadvertently – causes a number of serious tax issues both in Australia (not the focus of this article) and the USA.

One of the major issues is that you are personally taxable on the income of the Australian Self-Managed Superannuation Fund as it arises. This can add materially to your USA tax bill and should be avoided.

What Disclosures And Forms Do You Need To File?

As an Australian expat living in the U.S., you must comply with stringent reporting requirements related to your superannuation. 

Failure to do so can result in significant penalties. Some of the key forms and disclosures include:

1. FBAR (Foreign Bank Account Report) – FinCEN Form 114
   • If the total value of your non-U.S. financial accounts (including superannuation) exceeds $10,000 at any time during the year, you must file an FBAR.
   • Superannuation accounts are generally considered foreign financial accounts and should be included in the FBAR filing.
2. Form 8938 (Statement Of Specified Foreign Financial Assets)
   • If the total value of your foreign financial assets (including superannuation) exceeds certain thresholds ($50,000 for single filers, $100,000 for married filers living in the U.S.), you must file Form 8938 with your tax return.
   • This form is in addition to the FBAR and provides the IRS with detailed information about your foreign financial accounts.
3. Form 3520 (Annual Return To Report Transactions With Foreign Trusts)
   • If your superannuation is classified as a foreign trust, you may need to file Form 3520 to report contributions and distributions.
4. Form 8621 (Passive Foreign Investment Company – PFIC) Reporting
   • If your superannuation fund holds certain types of investments (e.g., managed funds), you may have to file Form 8621 to report Passive Foreign Investment Company (PFIC) income.

Consequences Of Contributing To Super While Living In The U.S.

If you continue making superannuation contributions while residing in the U.S., you may face unintended tax consequences:

• U.S. Tax on Contributions: Since the U.S. does not recognize super contributions as tax-deferred, employer contributions may be taxable to you in the year they are made.
• Double Taxation Risks: While contributions may be tax-free in Australia, they may be taxable in the U.S., leading to double taxation.
• Compliance Burden: Additional contributions increase the complexity of reporting and could result in higher U.S. tax compliance costs.
• Potential Loss of Benefits: Depending on how your super fund is classified, additional contributions could subject you to PFIC rules, leading to unfavorable tax treatment.

What Happens When You Can Access Your Super And Are Living In The U.S.?

When you reach preservation age and become eligible to withdraw your superannuation, you must consider how the U.S. will treat these withdrawals:

• Australian Tax Treatment – In Australia, lump-sum withdrawals from super after the age of 60 are typically tax-free.
• U.S. Tax Treatment – The U.S. may treat these withdrawals as taxable income, potentially subjecting them to ordinary income tax rates.
• Foreign Tax Credits – You may be able to offset some U.S. tax liability by claiming foreign tax credits, but this depends on the tax treaty’s applicability and how your super is classified.
• State Taxes – If you live in a U.S. state that imposes income tax, super withdrawals may also be subject to state taxation.

Strategies For Managing Your Super As A U.S. Based Expat

To minimize your tax burden and compliance obligations, consider the following strategies:

1. Pause Contributions While In The U.S.
   • Avoid making new contributions to super to prevent triggering additional U.S. tax and reporting obligations.
2. Review Your Super Investments
   • Assess whether your super fund contains investments subject to PFIC rules, and consider adjusting your investment mix.
3. Work With A Tax Professional
   • Given the complexity of superannuation taxation in the U.S., consult a tax advisor experienced in cross-border taxation.
4. Plan For Withdrawals
   • If you intend to withdraw super in the future, explore tax-efficient withdrawal strategies to minimize your U.S. tax liability.

Key Takeaways For Australians Living In The USA With Superannuation

Navigating superannuation as an Australian expat in the U.S. is challenging due to differing tax treatments and complex reporting requirements. 

Understanding how your super is classified, ensuring compliance with U.S. tax laws, and proactively planning for contributions and withdrawals can help you avoid unnecessary tax burdens. 

Given the nuances of cross-border tax regulations, seeking advice from an international tax firm is essential to optimize your financial situation while living in the U.S.

By staying informed and proactive, you can ensure that your superannuation remains a valuable asset for your retirement, regardless of where you reside.

Whether you are a UK expat currently residing in Australia, a UK citizen contemplating a move Down Under, or an Australian expat returning to Australian expat returning from a life in the UK, navigating the intricacies of pension transfers can significantly impact your tax situation and resulting finances.

The option to transfer UK pension to Australia is a worthwhile consideration for anyone relocating to Australia. This guide helps outline the process, identifying the benefits, challenges, and legal aspects involved.

Whether you have already moved to the United States or are planning to, there are tax implications for Australian expats to consider. 

For example, how does the Australia-US tax treaty apply to capital gains on the realization of assets, and what will your Australian and US tax obligations be? 

These are just a few questions this article will answer for you.

What Is Capital Gains Tax?

To begin, it is crucial to have a comprehensive understanding of capital gains tax concerning Australian expats. 

Capital Gains Tax or CGT is a tax on the profit made from selling an item classified as an asset. In Australia, as in the United States, CGT is complex and different from other taxes. Let us review both Australian and US CGT and then bring them together.

Australian CGT Tax

In Australia, CGT applies to any asset acquired after 20 September 1985. 

Selling an asset for more than it costs means you have a capital gain and must pay CGT. If an asset is sold for less than it cost, this results in a capital loss that can offset against current or future capital gains.

Generally, if an Australian tax resident makes a capital gain and the asset sold was held for at least 12 months, the 50% capital gain tax discount will apply. This results in half the capital gain being included in assessable income and being assessed at marginal rates of tax – which may vary between financial years. See the ATO website for the current individual tax rates. 

There are potential exemptions from the capital gains tax regime, including the main residence exemption.

A person’s main residence, which was moved into as soon as practicable after purchase and continues to be a person’s main residence for the entire ownership period, and on sale, if still a tax resident of Australia, will be exempt from CGT.

In relation to the main residence exemption, new laws passed in 2019, which came into effect 1 July 2020 now mean a total loss of this exemption if the property is sold while the taxpayer is a non-resident of Australia. There are some exceptions known as life events but careful planning is required to ensure the preservation of this exemption.

US CGT Tax

Under US law, the tax rate applied to capital gains depends on the asset’s holding period.

For assets held more than a year, you pay long-term capital gains tax, usually lower than the tax on ordinary income.

For assets held for less than a year, short-term capital gains tax rates apply, equal to your normal income tax rate.

Your income also determines the percentage of CGT you pay in the United States.

Your US CGT rate will depend on your taxable income. It is best to check the IRS website for the most current income thresholds for which CGT rate applies. 

There are also special circumstances under which your capital gains might be taxed at a higher rate. For example, net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate.

Australia-US Tax Treaty And Its Impact On Capital Gains Tax

For Australian expats in the US, the Australia-US Tax Treaty is particularly important to understand. First signed into law in 1982, the treaty has been updated several times since then to address changes in areas such as superannuation and non-US investments.  

The Australia-US Tax Treaty determines where your tax obligations lie between the two countries. The overarching goal of the treaty is “avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.” 

As we explain in this article, the Australia-US Tax Treaty, allows the tax paid in one jurisdiction to be claimed as a tax credit in the other jurisdiction, in the event that the income is assessable in both.  

For example, if the US sourced income is first taxed in the US and the income is then assessed in Australia, the tax first paid in the US will be taken up as a foreign tax credit against the tax assessed on the income. If the foreign tax credit covers the Australian tax, then any excess foreign tax credits are lost. If there is a shortfall after the foreign tax credit is applied to the assessed Australian tax, then extra tax will be required to be paid.

Tax Obligations When Selling A Former Main Residence In Australia

Let us look at an example to demonstrate how the Australia-US Tax Treaty affects Australian expats when selling their former main residence. 

An Australian couple moves to the US and lives there for eight years. They have decided to sell their former main home in Australia (purchased in 2015 for AUD1,000,000 and now worth AUD3,000,000).

Australian Tax Considerations

This couple would be classified as foreign residents and would not qualify for the CGT main residence exemption. As such, they will pay Australian CGT tax on the AUD2,000,000 (AUD3,000,000-AUD1,000,000) capital gain. 

However, if this Australian couple moves back to Australia and are considered residents for tax purposes and they reestablish the home as their main residence, depending on the length of their absence from Australia and whether they rented the property out or left it vacant, will determine whether a full or partial main residence exemption exists.

This example makes it clear that planning the timing of the sale of your former primary residence can and will have material tax implications. With that in mind, it is critical to get professional tax advice to optimize any potential or upcoming CGT liabilities.

It is important to note Australia also offers certain life event exemptions if they occurred during the time this family lived abroad, which could make them eligible for the CGT main residence exemption. 

The life events this includes are:

• You, your spouse, or your child under 18 had a terminal medical condition
• Your spouse or your child under 18 died
• The CGT event happened because of a formal agreement following the breakdown of your marriage or relationship

USA Tax Considerations

Any income earned, including employment income and realized capital gains, is subject to US tax. Australians who have become US tax residents, including green card holders and those in the US for over 183 days in the last two years, are taxed on worldwide income. This would include the AUD2,000,000 capital gain.

However, the U.S. allows a foreign tax credit for U.S. residents on US taxes owed against any tax already paid to Australia or vice versa. 

The Australia-US Tax Treaty requires that the combined taxes paid in both countries cannot exceed the total tax that would otherwise have been payable in the country where the sale occurs.

Australia And USA Combined Tax Considerations

If the Australian couple decided to sell their former main residence in Australia while being a non-resident for tax purposes, they will need to declare this income on both the Australian and US income tax return. 

As the property is situated in Australia, the first taxing rights reside with Australia. Tax will be applied at non-resident marginal rates on their AUD2,000,000 capital gain.  

For the US CGT, the tax on their AUD2,000,000 capital gain would be calculated depending on their combined income and the CGT rate applicable. 

Thankfully, this couple would not have to pay both the full amount of tax in Australia and the US, as the tax treaty allows taxpayers in each jurisdiction to avoid double taxation. In this case as Australia has the first taxing rights, the US would give the couple a tax credit for the tax paid in Australia and the excess tax paid will be carried forward.

CGT On Selling Shares Originally Purchased In Australia

Let us assume an Australian citizen moves to the US for a period of five years. During this time, they decided to sell the shares purchased while they resided in Australia.

The first aspect to consider is what their choice was when then became a non-resident of Australia. If an Australian tax resident moves to the US and becomes a non-resident and they hold a share portfolio, the choices on cessation of residency with respect to the share portfolio is either to take a deemed disposal or ignore the deemed disposal and treat the shares as Taxable Australian Property. 

A deemed disposal involves comparing the purchase price of the shares to the market value of the shares on the date that residency ceased. Importantly, there is no cash received with respect to this type of CGT happening and so if there is a large accumulated capital gain, then there will be a tax bill that requires payment from other funds. 

If the latter option is chosen (ie. they choose to treat the shares as Taxable Australian Property), any future sale of these shares are connected with Australia and a capital gain or capital loss requires calculation and reporting in the Australian income tax return, even as a non-resident.

Fortunately, the treaty provides a paragraph where future sales of this portfolio can be subject to tax solely in the US. If a choice is made to have future sales subject to tax solely in the US, then the deemed disposal on cessation of residency is ignored.

CGT On Inheritance In Australia

If an Australian citizen has lived in the US for 15 years and inherits an investment property and shares, what are the tax implications in both Australia and the US?

Inheriting Property

The original property was purchased for AUD500,000 and has a current market value of AUD2,500,000. If the property was sold on when inherited, there will be a capital gain of AUD2,000,000 (AUD2,500,000-AUD500,000). As Australia has the first taxing rights, tax will be applied at non-resident rates.

If they had no other Australian sourced income for the year in which the property was sold, tax on the capital gain of AUD2,000,000 would be AUD875,350.

The USA CGT tax on their AUD2,000,000 capital gain would be calculated depending on their combined income and the CGT rate applicable.

The Australian citizen would not have to pay both the AUD875,350 Australian CGT and US CGT as the treaty allows taxpayers in each jurisdiction to avoid double taxation. In this case, the US would give the person a tax credit totaling AUD875,350.

Inheriting Shares

If they inherit shares, they can choose to have any future sales solely taxed in the US under the Australia-US Treaty.

Get Help Navigating CGT For Australian Expats

There are many intricacies and challenges to navigating tax laws between countries. The information in this article may not cover some variables relevant to your circumstances and as such it is recommended you seek tax advice for your specific situation.

Retirement savings, especially when managing finances across international borders, can be complex. If you live in Australia, but hold plans in the USA, you need to understand the tax implications of having 401(k) and IRA plans. 

USA Tax Implications Of A 401(k) Or IRA Plan

401(k) and IRA plans are tax-advantaged retirement accounts that are available to US taxpayers. Contributions made to these accounts are typically tax-deductible, and earnings within the account grow tax-deferred until withdrawal. However, withdrawals from these accounts are usually subject to taxation in the USA. You should obtain tax advice from a qualified US tax advisor before accessing any benefits.

Australian Tax Implications Of A 401(k) Or IRA Plan

Australian tax residents (who are not temporary residents) are subject to tax on their worldwide income.

US retirement accounts like 401(k) and IRA plans are usually treated as foreign trusts by the Australian Taxation Office (ATO).

Therefore distributions from these vehicles will usually be taxable in Australia, except for amounts that can be said to represent contributions. This means that any taxable withdrawals from these accounts are treated as assessable income and taxed at the individual’s marginal tax rate. As foreign income, you would also be able to claim a Foreign Income Tax Offset (FITO) to reduce double taxation.

Roth 401(k) and Roth IRA plans are comprised of contributions made with after-tax dollars. This means that for Australian tax residents, withdrawals from these plans are generally tax-free.

Managing Funds While Living In Australia

For individuals residing in Australia who wish to access their US retirement funds, there are several options to consider:

1. Funds in the USA: Australian tax residents can choose to leave their 401(k) or IRA funds in the USA subject to complying with relevant US requirements. 
2. Withdrawal: Depending on the circumstances, individuals may opt to withdraw funds from their US retirement accounts. Careful consideration should be given to the tax implications of such actions, as they may trigger tax liabilities in both countries.

Our tax advisors and accountants are able to work with our clients, and their financial planners and wealth managers to clarify the taxation consequences, which would usually be an important element of the decisions that may be ultimately made.

Planning

Understanding the tax implications of 401(k) and IRA plans for Australian tax residents living in the USA is essential for effective retirement planning. While these accounts offer valuable tax benefits in the USA, they also come with potential tax liabilities in Australia. 

By navigating the complexities of dual tax systems and seeking professional advice, individuals can make informed decisions to optimise their retirement savings – while ensuring compliance with both US and Australian tax laws.

Given the complexities involved, seeking advice from tax professionals with expertise in both US and Australian tax law is highly recommended.

As specialists in International Tax, we can provide tailored guidance based on your individual circumstances. This can help you with your planning for accessing retirement funding in a way that helps you to minimise your tax obligations.

Our principal, Matthew Marcarian, was recently published in Australia’s leading tax journal, Taxation in Australia (run by the Tax Institute), with his article titled “Australian Expatriates: Casualties of Law“.

In his article Matthew looks at how over the last 20 years, Australia’s international tax settings have changed in a way which has increased the tax burden on Australian expatriates. Too often they become “casualties of law”, their interests overlooked by poorly conceived, and sometimes politicised, tax policy and design.

The article examines these changes and analyses major tax issues facing Australian expatriates at different stages of their expatriate journey. The article demonstrates how Australian expatriates can face higher taxes and significantly more complexity than fellow Australians.

The tax issues examined include the ongoing legislative uncertainty relating to individual and corporate tax residency, the removal of both the 50% CGT discount and the main residence CGT exemption for non-residents, the forex rules, the treatment of foreign structures, and overseas retirements plans.

The article also notes that an opportunity exists for the new Albanese government to address many issues to make them less burdensome and fairer for the Australian “diaspora”.

Read the article now.

For Australians interested in travel, one of the appeals of working on a super yacht or cruise ship could be the idea that their income becomes tax-free once they leave Australia.

Unfortunately Australian citizens, and potentially permanent residents, may find themselves still obligated to pay Australian taxes.

The situation has become even more complicated this year, with travel restrictions bringing people to shores they weren’t intending to live on.

The following gives a basic overview of Australian tax residency, with particular regard to individuals working on super yachts or cruise ships. However, since every situation is unique, this information is of a general nature only. You should speak to a qualified tax professional to determine your own situation. 

Australian Tax Residents

In simple terms this means that Australian citizens, or long-term residents, who start working on a super-yacht and cruising around the world, will usually be treated as an Australian tax resident. 

We note that the Australian government has indicated that it will introduce new residency rules, which among other things will do away with the permanent place of abode test and will introduce a 45 day rule for Australian citizens instead. However, despite being announced these changes are yet to be legislated (as of the date of this blog post) and therefore the question of whether a person has an overseas permanent place of abode continues to be relevant. 

Non-Resident for Tax Purposes

Non-residents are only required to pay Australian taxes on income earned from Australian sources. This means that non-residents who are working on superyachts will not be subject to Australian taxes.

While the default may be to assume that anyone who isn’t an Australian citizen is automatically a non-resident once they start working on a ship that cruises around the world, this isn’t necessarily the case either. If their permanent abode is still in Australia, and they continue to hold Australian residency, then they may continue to be an Australian resident for tax purposes as well. 

Living in Australia due to COVID-19

One of the factors further complicating issues is the travel restrictions due to the coronavirus pandemic.

Australian citizens have returned to Australia, despite permanently residing in other countries. Australian residents who were travelling have found themselves stuck in other countries. Non-residents who were not planning to stay in Australia have been stuck living on Australian shores. Individuals who have been travelling around in cruise ships may find themselves particularly susceptible to these issues. 

The Australian government has indicated that anyone living in Australia solely because of coronavirus, will continue to hold their previous residency, as long as they plan to, and actually, return to their place of residency as soon as practical once travel restrictions have been lifted. However, this is not a concession in law and a lengthy stay in Australia could trigger Australian residency, for example if there is an intention to reside here, regardless of the reason for that intention.

Place of “abode”

Living on a cruise ship or superyacht is usually not considered to be sufficient to establish a permanent home. The situation could be different if you have legal rights to reside in a particular country and you do so on a cruise ship. 

This means that Australians who simply start working on such ships will typically continue to be Australian residents, no matter how long they stay on such ships or how long they are employed overseas in these roles.

If an Australian has moved overseas and clearly established and used their permanent place of abode in another country before, or perhaps during, their time employed on cruise ships or super yachts, then their situation may be different. 

Example of an Australian citizen with ties to various countries, who is working on a Superyacht 

To understand how the situation can get a little tricky, consider this example of an Australian citizen.

Scott is an Australian citizen who moved to Singapore in 2000 and became a non-resident for Australian tax purposes by virtue of living in Singapore on a permanent basis. In 2005 he started working on international yachts and was paid in USD. After commencing this job he has rarely been back to Singapore.

Since his yacht licence was not recognised in Australia, Scott had no intention of returning to Australia to work. He still kept an Australian bank account with a reasonable amount of money that he could use during holidays in Australia to visit with family every year or so. He also holds bank accounts in various other countries and visits various other countries in between working as well. 

In 2019 Scott was granted permanent residency in France, however work commitments meant that he had not actually spent much time in France.  

Scott became, and continues to be involved in a romantic relationship with a Samoan national who also works on the superyachts. She is not an Australian citizen and has never lived in Australia. She has only visited Australia once with Scott and likewise, he has only visited her home in Samoa on one occasion. The couple began to spend most of their free time together in Malaysia and Indonesia. They have not purchased or contracted a home in either location and appear to treat their visits to Malaysia and Indonesia as holidays. 

In this situation Scott ceased residency back in 2000 when he moved to Singapore. However, at some point, since starting to work on the yachts, he appears to have severed ties with Singapore. He no longer appears to consider that his home, he has no assets there, does not return there in between work trips, and ultimately applied for residency in France.

Although he has been given residency in France, Scott has not purchased a home there, and does not regularly spend time there. Scott and his partner choose to spend most of their non-work time in Malaysia and Indonesia, however they show no indication that these places provide a permanent place of abode either, preferring to treat their trips as vacations in between working at sea.

Where is Scott a tax resident?

Luke is an Australian citizen who moved to the UK in 2000 with his wife, who is also an Australian citizen. Luke and his wife purchased a home in the UK and started a family there. In 2017 Luke was employed on a cruise ship. In between work shifts Luke always returns to the UK to be with his family. 

Luke and his wife visit their families back in Australia most years. They usually travel together, with their children, for these visits, except where the visit is based on an opportunity that has arisen due to the cruise ship docking on Australian shores.

Luke has a bank account, investments, and social ties in the UK. He maintains an Australian bank account, which he and his family use on their visits to Australia. 

In March 2020 Luke’s ship docked on Australian shores, and the Australian government advised Australians to return to Australia for the duration of the pandemic. Due to the pandemic and the Australian government’s travel announcements, Luke’s wife and children decided to fly over to join Luke in Australia. The family planned to return to the UK once travel restrictions were lifted. However they decided to remain in Australia while the pandemic worsened in the UK and things were still up in the air with Luke’s employment.

At this point in time Luke is not an Australian resident. He has established a permanent home in the UK with his family. They are staying in Australia with other family members or may be in temporary accommodation, not having established a home of their own here. They currently plan to return to the UK when it becomes practical to do so.

However, if Luke and his family decide to make Australia a permanent home their situation would change. This could happen if they decided to rent out a house for themselves, instead of continuing to stay with family, if they enrolled their children in Australian schools, and if they resigned from their employment to take up permanent positions in an Australian job. They could also face a deemed change of residency for the duration of their stay in Australia if the family continues to live in Australia after Luke returns to work on the yachts and he starts coming back to Australia instead of their home in the UK. 

Australian Residency While Working on a Super-Yacht or Cruise Ship

In general an Australian resident continues to be an Australian resident after taking up employment on a superyacht. This is because the ATO considers that their residence on the yacht is of a transitory nature. 

An Australian citizen who was living overseas may also become an Australian resident for tax purposes again, if they commence working on a superyacht and do not maintain ties with an alternative permanent place of residence. On the other hand, an Australian citizen who has clearly established themselves as a non-resident by setting up a permanent home overseas, will not automatically resume Australian tax residency if required to stay in Australia due to the coronavirus pandemic. 

Since the issue of residency for people working and essentially living on cruise ships and superyachts can be quite complex, it is important to discuss your unique situation with a tax agent who is experienced in residency issues.

Australia does not have an inheritance tax. When a person dies, the estate, or person who inherits the assets does not have to consider any special inheritance tax on the money or assets that are taking ownership of. While a beneficiary may be required to pay taxes from Superannuation death benefit payments, or capital gains on the sale of assets that have been inherited if those assets are sold, there is no specific tax levied on the value of inherited assets. 

However, there are many countries that do have inheritance taxes, including the United Kingdom.  

This means that when an Australian inherits money or assets from abroad, they may find themselves subject to an unfamiliar “inheritance tax”.

What is inheritance tax?

Inheritance taxes are special taxes that are levied on the assets that are received from the estate of a deceased person. As the beneficiary of a deceased estate you are required to pay taxes on the value of the inheritance that you are receiving.

In a similar vein, estate taxes are levied on the value that is paid out of a deceased’s estate. The estate is required to pay these taxes, rather than the beneficiary. This means that the beneficiary receives the net assets after the estate has paid any required.

In some countries these taxes are referred to as “death duty”.

The laws around inheritance taxes vary between tax jurisdictions. There may be different tax rates, different inclusions on what type of assets are taxed and different types of exemptions or limits.

Some countries like the United Kingdom levy inheritance taxes where assets are transferred to trusts and for this reason many British expats should seek inheritance tax advice before establishing a trust in Australia.

When would an Australian resident be required to pay Inheritance taxes?

As an Australian resident you are not subject to inheritance tax, regardless of where the inheritance is coming from. However the deceased estate may be subject to estate taxes prior to paying or transferring your inheritance to you.

In essence this means you, as an individual taxpayer, do not have to be concerned about being assessed for specific inheritance taxes.

What taxes does an Australian need to be aware of when inheriting assets from overseas?

The biggest difference is the added complications that inheriting from overseas may impose, including:

• Potential capital gains tax on exchange rate fluctuations when withdrawing foreign currency
• Estate taxes imposed on the estate that are paid prior to distributing your inheritance
• Foreign taxes imposed on continuing to hold onto any foreign assets or investments

Once you receive the inheritance the assets or money received are yours. This means that their ongoing use and benefit are assessed, where applicable, in your hands, just as any ordinary assets or finances that you earn or invest in yourself, would be. 

In June 2020 new legislation was passed that changes how directors are required to identify themselves. This change was the first step made in an effort to modernise business registrations. It means that all directors are now required to obtain a unique Director Identification Number (Director ID).

What is a Director ID?

A Director ID is a unique 15 digit number that all directors will soon be required to have. This identification number will help ensure that an individual can be correctly identified across all their roles as a director. The unique Director ID will stay with an individual regardless of name changes, location, or how many companies they become a director of.

Why is the Director ID being introduced

The Director ID is being introduced to mitigate the risk of fraudulent director nominations. It also increases the ability to trace relationships with directors and their companies. This is part of a broader plan to improve data integrity and security around company registrations and regulation.

What the Director ID means for you

If you are already a director it means that you will need to apply for a Director ID within the next year. If you are planning to become a director you will need to apply for a Director ID as part of your appointment as a director.

             New companies and new director appointments

Until 5 April 2022, any director appointed since 1 November 2021 has 28 days from the date of their appointment to verify their identity and apply for a Director ID.

From 5 April 2022 all individuals with new director appointments will need to apply for a Director ID prior to their appointment as a director. Anyone who is intending to become a director within the next 12 months is eligible to apply for a Director ID.

             Existing company directors

All existing directors (appointed prior to 1 November 2021) have until 30 November 2022 to identify themselves and apply for a Director ID.

In preparation for the application it is important to ensure that all existing company details relevant to your position as a director are up to date. If any personal details need to be corrected then Form 492 should be lodged to request corrections. This includes correcting errors in names, shortened forms of names, inaccurate dates or place of birth, or other information that may not have been submitted accurately with your initial nomination.

How do I apply for a Director ID?

Directors can only apply for a Director ID themselves. This is not something you can appoint an agent or representative to do on your behalf. You can make an application for your Director ID through one of the following methods:

1. Apply through the myGovID app (preferred method). Please note that myGovID is different to myGov.
2. Providing proof of identification documents over the phone.
3. Completing a paper application and mailing in the form.

To complete the digital application you will need to install the myGovID app on a smart device. Note that myGovID is a separate app to your personal myGov app that you use to manage your personal tax and other government related matters. You will then need two forms of identification, such as your driver’s license, Australian passport, birth certificate, visa, citizenship certificate, ImmiCard or Medicare card.

For more detailed information on how to set up your myGovID please see here:

https://www.mygovid.gov.au/set-up

If you do not have relevant Australian identification documents (for example, due to being a non-resident) or do not have an email address, then you will need to use the alternative forms of application.

The link to access the paper application form is here:

https://www.abrs.gov.au/director-identification-number/about-director-id

This link will also give you more information about the proof of identity documents that you are required to provide.

What happens if I don’t apply for a Director ID?

If you are required to have a Director ID and fail to apply for one within the required timeframe then you may be liable for penalties. Failing to apply for a Director ID when required can leave you exposed to both civil and criminal penalties.

Australian Business Registry Services

The requirement for all directors to obtain a Director ID is the first step in modernising and streamlining Australian business registry services. Phase 2 will commence in 2023 and will involve linking of Director IDs to their respective companies.