us expat tax guide – australia
What is an FBAR?
“FBAR” refers to the Foreign Bank Account Report, a requirement enforced by US authorities.
Many US expats mistakenly believe that they wouldn’t have to worry about FBAR compliance if they weren’t paying US taxes. However, regardless of your tax status or residency, if the total value of your foreign financial accounts exceeds US$10,000 at any point during the calendar year, you must file an FBAR.
Do I only need to report bank accounts?
No, the scope of the FBAR is more than just bank accounts. It includes all sorts of financial accounts, such as brokerage accounts, superannuation funds, and even accounts where you have signatory authority but no financial interest, such as accounts for volunteer organizations or small businesses.
What accounts should I be aware of?
When considering your FBAR filing, remember to account for:
- Brokerage accounts.
- Superannuation and SMSFs.
- Loans, like mortgage offsets, are treated like typical bank accounts.
- Joint accounts with a non-resident alien, where the full balance needs reporting.
- Accounts where you have signatory authority, regardless of ownership.
- Accounts set up by parents for their children if the parent has the authority to manage these accounts.
- Paypal and Wise accounts.
- Zero balance accounts that are still open.
What’s a common mistake regarding FBAR filing?
A typical error is underestimating what counts toward the FBAR threshold. For example, if you have a bank account with $4,000, a savings account with $6,000, and a superannuation fund with $20,000, you might think you’re below the threshold since your ‘bank accounts’ total $10,000.
However, including the superannuation balance pushes you well over the $10,000 mark, necessitating an FBAR filing.
Is FBAR a way of imposing additional taxes?
Absolutely not. The FBAR is not an income tax form; filing it does not generate tax liability. The form is purely informational and is filed with the Treasury Department, not the IRS. However, failing to file an FBAR can lead to significant penalties, up to $10,000 for non-wilful violations.
What steps should you take?
- Ensure all your foreign financial accounts are considered when assessing your obligation to file an FBAR.
- Maintain accurate records of all account balances throughout the year.
- Be responsive if you receive a letter from your bank asking about your US tax status, as this relates to FATCA, which requires foreign financial institutions to report on financial accounts held by US persons.
What about FATCA and bank inquiries?
Under the Foreign Account Tax Compliance Act (FATCA), banks must identify accounts held by US persons and report them to the IRS. Your bank might inquire about your US tax status; responding promptly and accurately is crucial.
This legislation ensures that US persons comply with their tax obligations, and non-compliance by financial institutions can result in penalties.
What is Form 8938?
While the FBAR is filed separately with the US Treasury, Form 8938, often dubbed ‘super FBAR,’ is filed with your tax return. This form ensures that any income from foreign accounts, such as dividends or interest, is properly reported on your US tax return.
Unlike the FBAR, Form 8938 has much higher thresholds and varies depending on your residency and filing status.
Is filing Form 8938 mandatory for everyone?
Filing Form 8938 is not automatic and depends on specific thresholds related to your residency and marital status. For instance:
- If residing outside the U.S. and filing jointly, you must file Form 8938 if the total value of your foreign financial assets exceeds $400,000 USD on the last day of the tax year or more than $600,000 USD at any point during the year.
- For a married couple living in the U.S., the thresholds are lower, necessitating Form 8938 filing for assets exceeding $100,000 USD on the last day of the tax year or $150,000 USD at any time during the year.
- Unique thresholds apply if you’re married to a non-U.S. spouse, which could lower the thresholds further, making it crucial to understand the specific requirements applicable to your situation.
