It's nice to know that you're not alone. And courtesy of Australia, U.S. citizens living abroad no longer need to feel they're the only ones being discriminated against by their government.
The United States is the only major country that imposes tax on its citizens regardless of where they live. Even if you've never lived in the United States, or left decades ago, if you're a U.S. citizen, you're liable to pay the same income, capital gains, gift and estate taxes as someone who's lived here all their life. (There's one major exception—the Foreign Earned Income Exclusion—but this program is far from perfect, and every year bills are introduced in Congress to end it.)
Now, Australia has made it more difficult for its citizens living there or anyone else "tax resident" in Australia to become a "foreign resident" for Australian tax purposes. On June 23, the Australian Senate enacted legislation that imposes Australian income tax on most Australians working abroad for periods under two years.
Australian exapts can reduce this assessment if a tax treaty permits offset of any foreign taxes paid against Australian tax, or if they can otherwise prove they already paid tax on the same income in another country. They may also be able to reduce it if they can demonstrate a "permanent abode" in another country. But that may not be easy to do for an assignment of only two years, particularly if they leave family members behind and make regular visits to Australia.
To add insult to injury, Australia also imposes an "exit tax" on the unrealized gains of any long-term resident who becomes permanently non-resident for tax purposes. The only way to avoid paying the exit tax is to elect to treat all assets you own when you leave Australia, anywhere in the world, as remaining in the Australian tax net.
I suspect many other high-tax countries will join in war on expats in the near future. Germany already taxes former long-term residents living in low-tax countries who retain substantial contacts in Germany. Canada imposes an exit tax on the unrealized capital gains of long-term residents when they leave. And of course, the United States now has its own exit tax, courtesy of the "conservative" President George W. Bush.
None of these ideas are that new. Nearly a decade ago, a committee appointed by the United Nations published a report that proposed that governments permanently tax the income of emigrants. In other words, if an Australian businessman moved to Dubai permanently, Australia would have the right to tax his income for the rest of his life. The U.N. report also helpfully proposed an "International Tax Organization" that would essentially function as a global tax collector. Its job would be to continue collecting taxes from pesky emigrants seeking to avoid them by living in a low-tax or no-tax jurisdiction.
I suspect that as time progresses, U.S. citizens won't be alone in needing to give up their citizenship to avoid the global tax net. Whether or not high-tax governments will create an International Tax Organization to pursue them remains to be seen.
The Nestmann Group, Ltd. can assist individuals seeking alternative citizenship and tax-advantaged residence. For more information, click here.
Copyright © 2009 by Mark Nestmann
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