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Foreign Account Tax Compliance Act

Foreign Account Tax Compliance Act (FATCA) is a United States (US) legislation to improve compliance with US tax laws.

Last updated 14 July 2022

What is FATCA

FATCA imposes certain due diligence and reporting obligations on Australian financial institutions (AFIs), and those of other non-US countries, to report US citizen or US tax-resident Account Holders to the US Internal Revenue Service (IRS). Failure to comply with FATCA's requirements will expose such Financial Institutions to a 30% US withholding tax on payments to them from US sources.

Australia and the US signed an inter-governmental agreement to implement FATCAExternal Link. 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, non-exempt AFIs need to register with the IRS and report to the ATO each year about certain Financial Accounts held with them by either US citizens, US tax residents specified US entities established in the US or controlled by US persons.

The information reported by AFIs to the ATO is made available to the IRS, in compliance with Australian privacy laws, under existing rules and safeguards in the Australia-US Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to taxes on income.

The FATCA Agreement provides exemption for certain Australian institutions (for example, superannuation funds) and accounts from the FATCA requirements, and the removal of the 30% withholding tax on AFIs (unless there is significant non-compliance by an AFI 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 FATCA applies to

FATCA applies to a broad range of Australian financial institutions, including:

  • banks
  • some building societies
  • some credit unions
  • specified life insurance companies
  • private equity funds
  • managed funds
  • exchange traded funds
  • some brokers.

What these financial institutions need to do

Australian financial institutions, subject to FATCA, need to:

  • review the FATCA regulations and other guidance on the IRS webpageExternal Link
  • register with the IRS by accessing the registration online toolExternal Link on the IRS website
  • review customer accounts held by US citizens or US tax residents that are reportable accounts under the FATCA agreement
  • lodge an annual FATCA report.

Additionally, the Reporting Financial Institution can use the ATO's self-review guide toolkit and Foreign tax resident reporting factsheet (PDF, 163KB)This link will download a file to help establish efficient compliance and reporting frameworks for their CRS and FATCA obligations.

Impacts for US citizens and US tax resident account holders

The FATCA Agreement won't change a US citizen’s existing tax obligations. However, individuals who are US citizens or US tax residentsExternal Link, 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.

Account holders may be contacted by their financial institution about confirming whether they are a US citizen, tax resident or otherwise a US person and may be asked to complete a self-certification form. If account holders have any questions about this process, they should contact their financial institution.

Note: We won't directly request information from an individual or entity for the purpose of their 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 AFIs (or other persons on their behalf) in which the relevant financial accounts are held.