# Reporting Property that made loss each year - quiet disclosure or streamlined?



## upsidedown (Mar 10, 2017)

Hi there,

I've been in the US for the last 8 years, just moved back to Australia and I've realized that I haven't reported rental income from a property I own in Australia for four years as I thought tax on it was only payable to Australia and not the US. I also have never filed FBARs, etc and would be a first time filer. Otherwise I have filed taxes in the US ok for the last 8 years.

The property has always made a loss each year through depreciation, interest, fees, repairs and everything else.

As I just moved to Aus, I believe that I would fall under the domestic streamline procedure, and would have to pay 5% of my bank accounts (which is mainly superannuation ~ 90k).

Which would the best way to go be - file the FBARs, then the amended returns for the last three years, or going into streamlined from the start?

Thanks


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## iota2014 (Jul 30, 2015)

upsidedown said:


> I've been in the US for the last 8 years, just moved back to Australia and I've realized that I haven't reported rental income from a property I own in Australia for four years as I thought tax on it was only payable to Australia and not the US. I also have never filed FBARs, etc and would be a first time filer. Otherwise I have filed taxes in the US ok for the last 8 years.
> 
> The property has always made a loss each year through depreciation, interest, fees, repairs and everything else.
> 
> ...


If it was me I would let sleeping dogs lie, since it appears you don't owe any US tax.


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## Moulard (Feb 3, 2017)

For once I too, have to agree with Iota on this one. 

Although if the loss is due to Negative Gearing, then I am not sure the the it would have been considered a loss in the eyes of the IRS... but ... lets just conveniently set that to one aside.

Were you in the US on a green card, or an E-3 Visa? 

This is important in terms of future filing requirements, the US Exit tax and coverage for long term permanent residents particularly given you have been in the US for 8 years.


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## upsidedown (Mar 10, 2017)

Dual citizen.

Yes with interest, repairs, depreciation it is easily a loss.


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## Moulard (Feb 3, 2017)

Everything would have been soo much simpler if you had said E-3.

I would file your first tax return from Australia as if you were a US Citizen who had just immigrated here and from now on report on your global income.

There is obviously a small but real risk associated with that approach that you will have to weigh up. But if you have returned to Australia more or less permanently and have no, or limited assets left in the US, there will be nothing for the IRS to seize. So unless you have millions hidden away... you will most likely sail beneath the radar.

The only significant difference in filing from overseas is there are a few additional forms that you will become quite familiar with.

Forms 2555, 8938 and 1116.

The rest of this is way off topic, but important for US persons in Australia...

FATCA

Australia has signed an IGA with the US on FATCA. There is prima facie evidence that the ATO is already passing on information on US taxpayers to the IRS.

For any financial asset you left open in Australia, ensure it has an Australian address and related contact details. You don't really want any indicea in those accounts that indicates that you are a US person for the purposes of CBR and FATCA. 

A number of financial institutions have amended application forms with a "Are you a US Person" checkbox now. You may find that some financial institutions will no longer want your business (mostly in the mutual fund type space) ordinary accounts are likely to be fine.

Anecdotally I know of one US person who was passed over for a job because he would have had authority over financial accounts of a company and they didn't want to get drawn into the IRS net. Basically the interview was over the moment he said he was a dual citizen.


Superannuation

I will preface this with you are on your own on this. There has been NO IRS guidance, revenue rulings or regulations published that give any clarity except at the very edges.

The US-AU Dual taxation convention is an old one that pre-dates the US Model treaty it also pre-dates the introduction of the compulsory scheme in 1992. Amendments to the agreement in 2001 did not address Superannuation, and since then it has not been a priority for either government.

The long and the short there has been no guidance from the IRS on how to correctly report Super. However what is clear is that it is not a qualified pension scheme, and from an employee perspective is afforded no treaty protections... thus conceptually it is taxable income, even though it is non-assessed income under Australian Tax Law... 

What it is, however, is a trust... (there are several private letter rulings on this) and that is where you need to be careful.

Personally, I would avoid involvement in either a self managed super fund, or a master trust. In both situations you may be considered either the grantor or the owner of the trust. In which case you may end up being liable to treating the annual growth of the fund as income. So stick with an Industry type fund as it more closely matches the idea of an Employees trust. Similar be careful about salary sacrifice into Super as that may make you a part owner of the trust in the eyes of the IRS.

At least until there is guidance from the IRS. (and you may be waiting a very long time)

US FOIA releases on Superannuation seems to suggest that internally the view of the IRS is that it falls under 402(b). Which means that you would treat the employer contributions each year as income. The only problem for us with that is 402(b) type contributions are not eligible for exclusion as earned income. Nor can you claim the contributions tax as under Australian tax law you are not liable for it. 

Grantor/Owner trust models are the ones pushed by the compliance industry which obviously has a lot to gain from 300 page tax returns. I also expect it was to them that the IRS has turned to for guidance.

There are however compelling arguments out there that take a position that Superannuation doesn't fit with 402(b). That because of the way that Superannuation is governed in Australia the following paper argues that in light of the way that the Superannuation Guarantee works in law when an employer does not pay means that:


The Australian Government is the Grantor and Owner of all Superannuation
There is no constructive receipt until reaching the preservation age
There is no economic benefit until reaching the preservation age

http://moodysgartner.com/wp-content/uploads/Berg-Dungog-10-10-20161.pdf

Its a long dense legalese read. The first half is mostly their recommendation on simply changes to the IRC that could provide clarity. The second is an analysis of the Internal Revenue Code and Superannuation Laws and why it should be treated as a tax exempt government pension.

Personally I find there position on constructive receipt and economic benefit compelling.. but am not so convinced on their position on trust ownership or grantor status, particularly in the case of SMSF. I think it would be hard to argue that you are not the trustee when your name is on the trust deed and you as trustee have significant control over the assets of your trust.

It may be prudent to treat it as 402(b) and report employer contributions as income. Australia tax rates are generally high enough to offset the fact that it basically tax exempt from the employees perspective. At least that way it cannot be argued that you are under reporting income, further on disbursement at reaching the preservation age, some of the balance would already have been taxed. 

If there is clarity between now and when you retire, you can always change the way you report it in future.


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