Pigou wrote The Economics of Welfare. When the marginal social interest diverges from the marginal private interest, the industrialist has no incentive to internalize the cost of the marginal social cost.
In fact, the treaty guarantees unfair taxation by the Tax problem of some Australian source income, including superannuation.
While the cause of this double taxation is Tax problem US practice of taxing based on citizenship rather than residence, the effect on Australian citizens and residents can be mitigated by updating the current tax treaty. Those subject to both sets of tax law will pay the higher of the two tax rates on each type of income.
The US has taxed based on citizenship rather than residence since the Civil War. Those impacted by the inadequate coverage of these agreements are Australians living in Australia.
The Australian government has an obligation to protect its citizens. Australia legislated mandatory retirement savings for employees with the Superannuation Guarantee Administration Act and the Superannuation Industry Supervision Act Unfortunately, the US does not recognise superannuation as a qualified tax-deferred retirement plan.
While the US tax rules in this area are complex, the US will generally tax contributions and either current income inside super or a portion of withdrawals from super.
The problems with this clause are discussed in this post by John Richardson at citizenshipsolutions. PFIC treatment results in punitive taxation of these investment vehicles. But, any of these investments that is registered for sale to retail investors will be required by Australian law to distribute all income and realised gains currently, just like the American equivalent.
NIIT applies to all investment income, regardless of source, and cannot be offset by foreign tax credits.
For those affected, this is a clear case of double taxation. The end result of these deficiencies in the current treaty is that any Australian citizen or resident that is also taxed by the US as a citizen or green-card holder will end up paying tax to the US on their Australian superannuation, and will also find it difficult to effectively invest outside of super.
These problems will affect middle class Australians more than high net worth Australians because a the most effective investment vehicles for small savers are exactly those classified as PFICs and b they are less able to afford the tax advice and compliance services needed to effectively plan for living under two very different tax regimes.
This deadline in the IGA provides the Australian government a window of opportunity to re-examine the agreement to ascertain whether the US is actually providing the data promised in Article 6.
While the focus of this site is on actions the Australian government can take to protect its sovereignty and tax base, see the US Action page for updates on the fight against Citizenship Based Taxation in the US.Aug 25, · The Coca-Cola Company might lose volume sales in South Africa, should the proposed tax on sugar-sweetened drinks be implemented next year.
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The TCJA’s Expensing Provision Alleviates the Tax Code’s Bias Against Certain Investments. The Tax Cuts and Jobs Act made significant progress in improving businesses’ ability to recover the cost of making investments in the United States by enacting percent bonus depreciation.
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