Taxation consequences for an expatriate investor?

September 4, 2006 10:26 PM

My friend is a USA citizen permanently residing in Australia. What are the taxation consequences of choosing to invest a windfall in the USA rather than Australia?

A friend has a one-time only opportunity to withdraw A$100,000 from a pension fund tax free. She presently has no personal income and pays no tax in either Australia or the USA. Her husband has a reliable income, which she shares.

Option 1: Leave the money in the pension fund, where it will accumulate tax free as long as she withdraws (and pays tax) on at least 4% of the capital every year.

Option 2: Withdraw the money and invest it in the USA, where it will be available for use on her regular visits.

Option 3: Withdraw the money and invest it in Australia.

Are there any major tax benefits to doing things one way rather than another?

posted by Joe in Australia to work & money (4 comments total)

As an American citizen, you owe taxes on income anywhere in the world. But the IRS might not find out about it if it is in Australia.
posted by grouse at 12:15 AM on September 5, 2006

AFAIK, Aus & the US have a reciprocal tax arrangement. But you don't mention which country the pension fund is in / where it was earned, which will make a big difference to the answer.

I have a few friends who had similar stories in reverse. Their advice? "Find an accountant; a damned good one!". I believe the ATO can be real bastards about this, unless they receive exactly the right documentation.

Reporting arrangements on Australian banks are similar to (what I know of) the U.S. - any deposits/withdrawals more than a few thousand will be reported to the ATO.

The ATO's International Tax Essentials page.
posted by Pinback at 12:40 AM on September 5, 2006

The Australian government may consider the pension fund withdrawal to be tax-free, but the IRS may not agree. The tax treaty may not cover your friend's specific circumstance. I know that the Canada/US tax treaty does not cover all types of retirement funds. Get a damned good accountant.
posted by crazycanuck at 9:12 AM on September 5, 2006

US citizen, long term resident of London - agree on the accountant.

Also agree on the tax treaties. I haven't seen the data for a few years, but I do know that as of 1998 about the only countries the US wasn't sharing tax information with was Iraq, Iran and a few others of that ilk. Nations may disagree publicly on many things, but privately they all agree on the need to tax. And they cooperate with each other.

Not sure what a tax accountant in your situation would cost, but I pay KPMG about 3K Sterling / year for a set of US & UK returns, which includes one hours verbal consultation as part of the preparation process.

Try to avoid talking about your weekend when you do meet your accountant.
posted by Mutant at 1:53 PM on September 5, 2006