Triple citizenship tax advice

[christophe]

Looking for some advice here as I think my situation is a bit more unique than most people who just live abroad.

I'm in my early 40s, and have 3 citizenships: US, UK, Australia. Have been outside of the US for about 15 years, married and live currently in Australia. I've always filed tax in the most basic way by claiming foreign tax exclusion as I was at or above the threshold but able to claim expenses to drop under, and this was fine for a long time.

However I'm now exceeding the foreign exclusion threshold and have recently only found out about claiming foreign tax credit. Really wish it was more common advice to claim this as long term it's far more beneficial.

Have been living in Australia for about 5 years and as such have a superannuation. I've never contributed more than the required amount by my employer (10%). I had no idea that this needed to be claimed as income on my US taxes and put into the FBAR form every year. This is all new information to me.

So here's my question, ethical or not. I've never used my US passport for anything in Australia. Entered and gained citizenship through my UK passport. So all accounts and superannuation were setup this way. How likely is it that my superannuation accounts would be reported to the IRS? I have a real issue reporting income sent to a retirement pension and paying tax on this back to the US where I haven't lived in 15 years.

Renouncing citizenship seems like one option for me as I already have 2 other passports. I'd really like to avoid that route though. Does anyone else have experience with a situation similar to mine? Have you claimed superannuation on your taxes, or had an questions asked about it? Does foreign tax credit help offset this enough to avoid additional tax?

Additional question. How do long term expats save for retirement without a huge tax mess in the US? The older I get the more this becomes a very stressful situation.

Many thanks!

 

[jin86]

@christophe As an American living abroad for the last 12 years, it is NOT easy to find an employer with a USA compliant retirement investing option. It is going to be worth it to pay an accountant who specializes in expats to talk through your options. There are a few fee only financial advisors who will do the same (they know more about expat friendly investment firms). You need to read up on PFICs, and why they are so complicated/difficult for Americans abroad.

If I were you, I'd investigate renouncing citizenship if your life is leading you to live out your days in Australia. The US passport has its advantages (and passing this along to your kids is a nice benefit), but the investments side can be brutal. The US system makes it very difficult to be compliant with US law if your employer doesn't already have a compliant system in place.

 

[eee27]

@jin86 Superannuation contributions are mandatory for practically all employers in Australia, and superannuation is non-compliant, so any US citizen working as an employee in Australia is going to have to deal with it.

It's absurd that it's not considered a valid retirement scheme, but I guess nobody wants to sit down and work out the details for the sake of a few ordinary people when there are more important US-AU matters, like billions of dollars worth of submarines, to worry about.

 

[christophe]

@jin86 Finding a compliant employer is not an option in my industry. Not really sure where to begin finding a reliable expat financial advisor.

The classification of a PFIC is very confusing. Would something like a Vanguard ETF fund fall under this if invested in outside the US?

The thought of renouncing is very gut wrenching.

 

[bandr]

@christophe It does not matter what a fund invests in, but where its domicile (country of incorporation) is. This is shown in the two-letter code at the start of the ISIN. Anything other than "US" makes the fund foreign from a US perspective and highly likely a PFIC.

 

[jin86]

Also, read the tax treaty between the USA and Australia. Superannuations will be addressed there.... though another reason to hire an accountant. I'm 1,000% sure there is an Australian firm that specialized in US expats in Oz.

 

[teofan]

@jin86

Superannuations will be addressed there

I'm pretty sure it's not addressed, which is a huge problem for people like OP.

 

[eee27]

@christophe Superannuation contributions are taxed at 15%, so you should be able to claim some foreign tax credit.

I think for US citizens, investing in US-domiciled ETFs is the simplest option for retirement saving.

 

[bandr]

@eee27 .. unless US-domiciled ETFs are unavailable due to local laws (other countries can regulate their financial/investment markets just like the USA can), or are taxed unfavorably or punitively by the local tax code.

The "simple" solution can turn out to be surprisingly complex.

 

[eee27]

@bandr Yeah, I know it's a massive pain in the arse if you're an EU resident, and you're probably SOL anywhere with capital controls. Luckily Australia is fine with most foreign investments.

 

[przemek]

@christophe Hey!

It doesn't really matter if your decisions are ethical or not, or what personal issue you have with reporting or not. The fact is: it's a responsibility of holding onto your US citizenship. If you have declared any of your Australian accounts to FATCA (surely you didn't answer "No, you're not an american citizen" to every supplier?) than they know you hold foreign accounts and you're risking hefty fines by "whoops" not reporting some. Will those fines play out? Who knows, but they are hefty. Even if you're not in the net yet, you know that you are wilfully non-compliant.

If you've been out of the US for 15 years and are 40's, you should know whether you want to return for more than 3 months two times per year. I gave mine up once receiving my 3rd citizenship and now back to two. Mid-40's, haven't lived in the US since the early 00's but visit every couple of years. Couldn't be happier.

Short answer: US expats save for retirement by sacrificing the majority of tax efficient vehicles in their host country and selecting US ETFs and Mutual Funds via a expat friendly broker. Here in Europe we exploit financial options to acquire things we legally aren't allowed to buy. You can probably find a US account who can deem your super annuation as a non-pfic.

 

[christophe]

@przemek Thank you for your reply. With elderly parents, renouncing is a big concern. This is the uncertainty for long term and why retirement savings is such a stressful situation.

 

[przemek]

@christophe Fair call, I should have been more considerate to that. That is indeed a topic to be aware of, in the event that you want to move back and support your parents.

Individual stocks and real estate are pretty easy assets from a US tax perspective, as well as US domiciled ETFs. Luckily there are a lot of Ameristralians out there and a lot of help available.

In general, my experience is to: own it, be compliant, get advice, put a plan together and act on that plan.

 

[christophe]

@przemek Thank you for the encouragement. I'm sure it's a difficult pill to swallow for everyone in this situation. The fact I'm reaching out to reddit shows how difficult or expensive the information is.