Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act (FATCA) is United States (US) legislation aimed at improving compliance with US tax laws. FATCA imposes certain due diligence and reporting obligations on foreign (non-US) financial institutions, including the obligation to report US citizen or US tax resident accounts to the US Internal Revenue Service (IRS). Failure to comply with FATCA's requirements exposes such financial institutions to a 30 per cent US withholding tax on payments to them from US sources.
Australia and the US signed an intergovernmental agreement to implement FATCA (the FATCA Agreement). A key objective of the FATCA Agreement is to facilitate Australia's compliance with FATCA in a way that reduces its overall burden on the Australian financial industry and the broader community. On 16 September 2015, the Competent Authorities of Australia and the US signed a Competent Authority Arrangement to help implement the provisions of FATCA.
Under the FATCA Agreement, Australian financial institutions do not report information directly to the IRS. Instead, they report to the Australian Taxation Office (ATO) and the information is made available to the IRS.
The FATCA Agreement provides significant relief for Australian financial institutions, including the exemption of certain Australian institutions (for example, superannuation funds) and accounts from the FATCA requirements and the removal of the 30 per cent withholding tax on Australian financial institutions (unless there is significant non-compliance by an Australian financial institution with its FATCA Agreement obligations).
The FATCA Agreement also improves existing reciprocal tax information-sharing arrangements between us and the IRS. This helps ensure Australian tax laws are effectively enforced so Australian businesses and individuals who pay the correct amount of tax are not disadvantaged by those who seek to evade their tax obligations.
Who does FATCA apply to?
FATCA applies to a broad range of Australian financial institutions, including:
- some building societies
- some credit unions
- specified life insurance companies
- private equity funds
- managed funds
- exchange traded funds
- some brokers.
What do these financial institutions need to do?
Australian financial institutions subject to FATCA need to:
- register with the IRS through the IRS website
- review customer accounts held by US citizens or US tax residents that are reportable accounts under the FATCA agreement
- report their 2014 calendar year information to the ATO in the 2015 calendar year and annually thereafter.
FATCA data needs to be lodged with us in the IRS FATCA XML Schema formatExternal Link through the Business Portal.
Australian Financial Institutions will need to lodge their data with us by 31 July of the following year to which the information relates.
In the 2015 calendar year, the lodgement facility will be available from 1 July 2015. Lodgments cannot be accepted before this date. Australian Financial Institutions will be able to lodge from 1 January in later years.
Impacts for US citizen account holders
The FATCA Agreement will not alter a US citizen’s existing tax obligations. However, individuals who are US citizens or US tax residents may have their Australian financial accounts reported to the IRS in accordance with the FATCA Agreement. This will increase the chance of detection by the IRS of individuals who have not complied with their US tax obligations.
Under US law, US citizens generally have US tax obligations even if they reside outside the US. US citizens who are also Australian tax residents are generally liable for Australian income tax on their worldwide income, including on income from sources in the US. However, the Australia-US tax treaty includes double taxation relief rules where both countries are entitled to tax the same income.
The Australia-US tax treaty also clarifies the treatment of individuals that are not US citizens but who are tax residents of either or both the US and Australia.
US citizens or US tax residents should contact a registered tax adviser to advise them about complying with any US or Australian tax laws that might apply to them.
Note: We will not directly request information from an individual or entity for the purpose of that person’s identification under the FATCA Agreement and its implementing legislation. Under the FATCA Agreement, a person’s identification as a US person is undertaken solely through specified due diligence procedures carried out by relevant Australian financial institutions (or other persons on their behalf) in which the relevant financial accounts are held.
Find out about:
Australian financial institutions:
Australia has an agreement with the US from 1 July 2014 to facilitate the Foreign Account Tax Compliance Act (FATCA) for Australian financial institutions, affecting a broad range of financial institutions including banks, some building societies, credit unions and investment funds.