Impact of Trump’s tax policies on US Citizens overseas - KPMG Australia
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Impact of Trump’s tax policies on US Citizens in Australia

Impact of Trump’s tax policies on US Citizens overseas

Ablean Saoud and Terry Hoban, discuss the impact of Donald Trump’s tax policies for US Citizens in Australia.


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Mr Donald Trump’s victory, combined with a Republican-dominated Congress, means there are likely to be some long-awaited changes to US tax law, which will be very positive for the 80,000 US citizens living in Australia.

Income Tax rates overall will come down and the top individual marginal tax rate will be reduced to 33 percent from 39.6 percent. This will create a larger differential between Australian and US individual income tax rates. Such a differential will allow US citizens living in Australia to more effectively utilise investment vehicles such as family trusts and superannuation to reduce their global effective tax rate without inadvertently triggering US tax.

In addition, the infamous US death tax (AKA Gift and Estate tax) will be removed. This will eliminate what is currently a tax of up to 40 percent on the estates of US citizens who die holding more than $5.5million USD in worldwide assets. Australian investors holding US assets can also breathe a sigh of relief, as currently the threshold before paying US estate tax upon death is only $60,000 USD, over which the tax kicks in.

However, the best tax news of all for US citizens living here is the proposed repeal of the net investment income tax (NIIT) or ‘Obamacare’ tax. This 3.8 percent tax on passive income has left a sour taste in the mouth of higher-income earning US citizens in Australia since 2013 when it was first introduced. Under the Internal Revenue Code no foreign tax credits can be used to offset this tax, effectively leading to a ‘double’ tax by both Australia and the US on the same income. Its repeal will be one less thorn in the side of US taxpayers outside of the US.

Over the last few years, US citizens living in Australia have had to deal with the introduction and complexities of the onerous FATCA regime, under which they have had to disclose foreign financial assets and have faced significant penalties apply for noncompliance. The number of US citizens relinquishing citizenship in the last 3 years has increased by over 42 percent. The Trump policy proposals to cut tax rates, remove estate taxes and repeal the Obamacare tax will provide some considerable and welcome relief to them.

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