Big Fat Disclaimer: I am not a tax expert or an accountant. Be sure to research and confirm all information listed above. It is your responsibility that your taxes are filled out correctly.
Taxes for Expats has agreed to give Sydney Moving Guide readers a $75USD credit (promo code “downunder”) towards any of their services.
Please use this credit! Yes, Taxes for Expats is a partner of Sydney Moving Guide, and yes, they do pay me a referral commission. The $75 credit comes from me waving a portion of that commission because getting your taxes right is of huge importance. Even what seem to be minor mistakes, can result in major fines.
What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) was passed in 2010 and requires financial institutions all over the world to identify accounts held directly or indirectly by people who are US Persons for US tax purposes. This includes anyone who has links to the US, such as with US nationality, place of birth in US, a US mailing address or a US telephone number plus other links to the US.
When you open your bank account in Australia, the bank will ask if you are a tax resident of a country other than Australia. You will need to provide the bank your tax id number from the country where you are a tax resident. If you’re from the US, then it’s your Social Security Number. This is due to FATCA.
There is a strong chance that you will be filing Form 8938 every year along with your tax return, in addition to an FBAR.
Ok, so it gets kind of crazy here and, if you are not convinced that you need the help of a tax professional, you will be soon.
Form 8938 is where you report all your foreign assets like your Australian Superannuation. I know that sounds very similar to FBAR, and like you’re reporting your superannuation twice. Well, that’s because you are. But, the main difference is, you file Form 8938 with the IRS when you file your taxes if it applies to you. Since you will be filing Form 8938 with your taxes, it’s due date is the same as your tax file date.
Alright, let’s go over who is required to file Form 8938 then I will explain why Form 8938 applies to you, once you are in Australia.
But before we get into who is required to file Form 8938, we need to back up a little and talk about the Physical Presence Test and the Bona Fide Residence Test.
Physical Presence Test
To pass the Physical Presence Test, you must be a US citizen or a resident alien and physically presence in a foreign country or countries for at least 330 days out a consecutive 365 days. You must also be legally inside your foreign country of residence. So have a valid Australian visa.
The 330 days spent outside the US and its territories do not have to be consecutive.
If you travel to the US for vacation, family problems, illness or for work, you are physically present in the US it will be counted against your 330 days. Make sure that you are physically present in the US for less than 35 days within the consecutive 365 days for any reason if possible.
The IRS goes into more details here and has a few examples.
How to Figure the 12-month Period for the Physical Presence Test
There are four rules you should know when figuring the 12-month period:
- Your 12-month period can begin with any day of the month. It ends the day before the same calendar day, 12 months later.
- Your 12-month period must be made up of consecutive months. Any 12-month period can be used if the 330 days in a foreign country fall within that period.
- You do not have to begin your 12-month period with your first full day in a foreign country or to end it with the day you leave. You can choose the 12-month period that gives you the greatest exclusion.
- In determining whether the 12-month period falls within a longer stay in the foreign country, 12-month periods can overlap one another.
Bona Fide Residence Test
Similar to the Physical Presence Test, to pass the Bona Fide Residence Test you must be a US citizen or resident alien and have set up residence in a foreign country. You must also have lived in that country for a whole tax year.
The main difference between the two tests is, to pass the Bona Fide Residence Test, you must not have plans of returning to the US or moving to any other foreign country. So you are permanently moving to Australia for good.
Keep in mind that if your visa is a temporary visa like the Australian TSS subclass 482 visa, you won’t qualify for the Bona Fide Residence Test even if you want to stay permanently in Australia.
Here’s a link to the IRS explanation of Bona Fide Residence Test with examples.
Now that we have covered the Physical Presence Test and the Bona Fide Residence Test let’s go back to FATCA and Form 8938.
Form 8938 Filing Thresholds Values
Filing thresholds for Form 8938 are different for US taxpayers living in the US or living abroad. To determine if you are a US taxpayer living abroad, you must pass either the Bona Fide Residence Test or the Physical Presence Test.
- Individual or Single US Taxpayer Living Abroad: Aggregate specified foreign assets of USD 200,000 on the last day of the year or USD 300,000 at any time during the year.
- Joint Filing US Taxpayers Living Abroad: Aggregate specified foreign assets of USD 400,000 on the last day of the year or USD 600,000 at any time during the year.
- Individual or Single US Taxpayer Living in the US: The total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
- Joint Filing US Taxpayers Living in the US: The total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
If you are required to file Form 8938, chances are you will also be filing an FBAR too.
The penalty for failing to file Form 8938 is $10,000USD with an additional penalty up to $50,000 for continued failure to file after IRS notification. A 40% penalty on any understatement of tax attributable to non-disclosed assets can also be imposed.
There are two things you are probably wondering now.
1. Form 8938 probably doesn’t apply to you right now since you are in the process of moving and most likely do not have any foreign assets.
Form 8938 could very well be in your future if you work in Australia and have an Australian Superannuation. I tackle superannuation and US taxes in a post here.
2. What are specified foreign assets?
Once again, I’m going to just copy the information from the IRS documentation on Form 8938 and paste it below.
A specified foreign financial asset is:
- Any financial account maintained by a foreign financial institution
- Other foreign financial assets held for investment that are not in an account maintained by a US or foreign financial institution, namely:
- Stock or securities issued by someone other than a U.S. person
- Any interest in a foreign entity, and
- Any financial instrument or contract that has as an issuer or counter-party that is other than a U.S. person.
If you at any time, have questions about reporting a foreign asset on Form 8938, please contact a tax professional. It’s by far better to overreport than to not report at all.