Should we realise some USA capital gains while overseas? - Page 2

Go Back   Expat Forum For People Moving Overseas And Living Abroad > Expat Forum General and International > Expat Tax

Expat Tax This forum is for tax related queries and discussions for all expats.

Should we realise some USA capital gains while overseas? - Page 2


Reply
 
Subscribe to this Thread Thread Tools
  #11 (permalink)  
Old 13th July 2019, 06:03 PM
Banned
 
Join Date: Oct 2018
Posts: 462
Rep Power: 0
underation is on a distinguished road
17 likes received
32 likes given

Default

Quote:
Originally Posted by underation View Post
The question is: does the recipient get taxed by NZ on the eventual pension payments?
And the answer, it appears, is no.

Consequently, a US citizen who files US tax returns should report the employer’s contribution as US-taxable income, as that does not result in double taxation.

Reply With Quote Quick reply to this message
  #12 (permalink)  
Old 14th July 2019, 03:12 AM
Member
 
Join Date: Feb 2017
Location: Oz
Posts: 347
Rep Power: 0
Moulard is on a distinguished road
46 likes received
12 likes given

Users Flag! Originally from usa. Users Flag! Expat in australia.
Default

Quote:
Originally Posted by underation View Post
If NZ doesn’t tax employer contributions on the way into the plan, presumably NZ will tax after retirement when the pensions are received?

If so, then a USC who is filing US tax returns surely should simply exclude the contributions from Gross Income.
Employer contributions ARE taxed on the way in, but they are NOT taxed as income to the employee.

And there is the rub. Employer contributions are taxed, but the employee is not liable for the tax. Under NZ law, I believe that employer contributions are treated as non-assessed income to the employee, but treated as assessed income of the fund. As such the tax liability is on the fund not the employee.

Therefore in the eyes of the IRC, no tax credit is available to the employee for that portion of their wages that are contributed to the scheme.

Similarly, a highly remunerated individual may be forced under the IRC to pay tax on growth in the fund.

Quote:
I, too, have not read the NZ treaty but I assume it contains the usual “Relief from Double Taxation” Article and is protected from the Saving Clause
Articles 18 and 22 (in the case of NZ) are not a double taxation panacea.

Article 18 protects pension payments after retirement.

Article 22 provides relief it does not provide elimination of double taxation, and it allows the US to limit that relief - which it does.

Reply With Quote Quick reply to this message
  #13 (permalink)  
Old 14th July 2019, 07:43 AM
Banned
 
Join Date: Oct 2018
Posts: 462
Rep Power: 0
underation is on a distinguished road
17 likes received
32 likes given

Default

Quote:
Originally Posted by Moulard View Post
Employer contributions ARE taxed on the way in, but they are NOT taxed as income to the employee.
Correct - and the eventual payments aren’t taxed either.

Quote:
...no tax credit is available to the employee for that portion of their wages that are contributed to the scheme.
Correct. S/he hasn’t paid any NZ tax on the employer’s contribution. You can’t claim credit for tax you haven’t paid.

Quote:
Similarly, a highly remunerated individual may be forced under the IRC to pay tax on growth in the fund.
Well - might owe US tax, yes. It’s not coerced, since the law of the land (NZ law) presumably doesn’t require the expat to report his/her income to the US as US-taxable.

Quote:
Articles 18 and 22 (in the case of NZ) are not a double taxation panacea.
The expat isn’t being double-taxed. They’re being taxed on the employer contributions by the US rather than NZ.

If the expat never files US tax returns, the NZ income remains non-US-taxable. It’s up to the expat to decide whether to file the returns, complying with their citizenship obligation, or not file the returns. Some wouldn’t dream of filing, some wouldn’t dream of not filing. It’s a reasonable choice, either way, but it’s a complex situation and quite hard to figure out the pros and cons, for those who identify as American and want to live as dual citizens, owing loyalty (and potentially taxes) to both countries.

Reply With Quote Quick reply to this message
Sponsored Links
Advertisement
 
  #14 (permalink)  
Old 14th July 2019, 09:51 PM
New Member
 
Join Date: Mar 2016
Location: USA
Posts: 4
Rep Power: 0
boopieboop is on a distinguished road
1 likes given

Users Flag! Originally from usa. Users Flag! Expat in australia.
Default

Many thanks for these responses. One point of clarification. The ESCT is considered an employee income tax in NZ. As in, employer contributions are taxed at the employee's marginal income tax rate on the way in. The employer literally transfers the funds, just like PAYE (regular income tax), but it is considered to be paid by the employee via withholding.

Reply With Quote Quick reply to this message
  #15 (permalink)  
Old 14th July 2019, 10:21 PM
Banned
 
Join Date: Oct 2018
Posts: 462
Rep Power: 0
underation is on a distinguished road
17 likes received
32 likes given

Default

Quote:
Originally Posted by boopieboop View Post
Many thanks for these responses. One point of clarification. The ESCT is considered an employee income tax in NZ. As in, employer contributions are taxed at the employee's marginal income tax rate on the way in. The employer literally transfers the funds, just like PAYE (regular income tax), but it is considered to be paid by the employee via withholding.
Have you tried claiming US tax credits for it?

Reply With Quote Quick reply to this message
  #16 (permalink)  
Old 14th July 2019, 10:35 PM
Member
 
Join Date: Feb 2017
Location: Oz
Posts: 347
Rep Power: 0
Moulard is on a distinguished road
46 likes received
12 likes given

Users Flag! Originally from usa. Users Flag! Expat in australia.
Default

Thanks Boopieboop.

I had assumed the tax component was treated similar to Super given the two schemes are alike in so many other ways. Bad assumption on my part.

If the tax component appears on your personal tax summary from Inland Revenue (notice of assessment or its equivalent), then you can claim it. But the other point I made that it is not eligible for the Foreign Earned Income Exclusion remains correct.

Depending on your broader income profile you may be able to deduct in from your standard deduction to owe no US tax. But if you have other income that you need to report, then that may not be sufficient.

In which case you may find it beneficial to use foreign tax credits. I don't know NZ tax rates, but I will assume that the marginal rate is higher in NZ than the US.

You can also split your filing so that you use the FEIE to exclude your normal wages, and the FTC to offset the tax owed on contributions to your KiwiSaver. You would only be able to claim that portion of your income tax that was related to the non-excludable contribution.

Reply With Quote Quick reply to this message
  #17 (permalink)  
Old 15th July 2019, 01:13 AM
New Member
 
Join Date: Mar 2016
Location: USA
Posts: 4
Rep Power: 0
boopieboop is on a distinguished road
1 likes given

Users Flag! Originally from usa. Users Flag! Expat in australia.
Default

Quote:
Originally Posted by underation View Post
Have you tried claiming US tax credits for it?
Not as yet.

Reply With Quote Quick reply to this message
  #18 (permalink)  
Old 15th July 2019, 07:42 AM
Banned
 
Join Date: Oct 2018
Posts: 462
Rep Power: 0
underation is on a distinguished road
17 likes received
32 likes given

Default

Quote:
Originally Posted by boopieboop View Post
Not as yet.
At any rate (it appears to me), since the tax paid on the employer’s contributions are taxed by NZ, and the tax is treated as being paid out of the employee’s wages, and it’s not a tax-deferred pension, and the eventual payments are exempt by treaty — there’s no untaxed income that could be taxed by the US, so it doesn’t really make any difference whether the employer’s contribution is reported, and US tax credits claimed, or excluded as exempt by treaty.

Reply With Quote Quick reply to this message
  #19 (permalink)  
Old 15th July 2019, 09:28 AM
Banned
 
Join Date: Oct 2018
Posts: 462
Rep Power: 0
underation is on a distinguished road
17 likes received
32 likes given

Default

One further comment, about the problem referred to by Moulard concerning what retirement plans will or won’t be treated as “qualified” or “similar to “qualified”.

Quote:
Originally Posted by Moulard View Post
Not all earned income is treated as earned income in the eyes of the IRS. These sorts of retirement schemes are not treated as earned income under the IRC. Even if they are a direct percentage of wages, are part of an overall salary package, or are factored into an employment contract. As such they are not eligible for the foreign earned income exclusion by virtue of the fact that they are non-qualifying retirement schemes. For what its worth, no foreign scheme is qualifying.
This problem has been fixed in the (Consolidated) US-UK treaty provisions (I believe as a result of a taxpayer’s MAP appeal), by the two countries agreeing that a non-US-retirement plan which is similar to a “qualified” US plan (as determined by the Competent Authorities), will be treated as such. So clearly it’s not current US policy to obstinately behave like a jackass by dismissing other countries’ retirement plans as “not qualified” simply because they’re not American retirement plans.

From a cursory glance, it looks to me like it may have been fixed by the 2008 US-NZ Protocol also. But in any case, it’s clearly not necessary to assume that the Kiwisaver has to be treated as “not a qualified retirement plan” when determining whether US tax is or is not due. Better (IMO) to assume that it is a retirement plan / pension scheme, and treat it accordingly; and if the IRS disagrees, take it to the MAP.


Last edited by underation; 15th July 2019 at 09:32 AM.
Reply With Quote Quick reply to this message
  #20 (permalink)  
Old 17th July 2019, 07:38 PM
Banned
 
Join Date: Oct 2018
Posts: 462
Rep Power: 0
underation is on a distinguished road
17 likes received
32 likes given

Default

It appears to me that the provisions set out in 18.4 of the 2006 US Model Tax Treaty can be taken to reflect current US policy on expats and non-US pension funds.

https://www.treasury.gov/press-cente...ts/hp16801.pdf

The “not a qualified pension plan” meme seems likely (to me) to be a thing of the past.

Reply With Quote Quick reply to this message
Reply


Tags
capital gains, expat tax, new zealand

Quick Reply
Message:
Options

Register Now

In order to be able to post messages on the Expat Forum For People Moving Overseas And Living Abroad forums, you must first register.
Please enter your desired user name, your email address and other required details in the form below.
User Name:
Password
Please enter a password for your user account. Note that passwords are case-sensitive.
Password:
Confirm Password:
Email Address
Please enter a valid email address for yourself.
Email Address:
Location
Where you live
Expat From Country
Please select the country you originate from. This will appear as a flag when you make posts on the site.
Expat To Country
Please select the country you have either moved to or want to relocate to. This will be presented on the site when you make posts.

Log-in


Thread Tools

Posting Rules
You may post new threads
You may post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


FORUM PARTNERS

ExpatForum.com is owned and operated by VerticalScope Inc.

Retiring Overseas Guides | Moving Overseas Guides | Cost of Living | Health Care Guides


All times are GMT. The time now is 09:38 PM.


Powered by vBulletin®
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
Search Engine Friendly URLs by vBSEO
vBulletin Security provided by vBSecurity v2.2.2 (Pro) - vBulletin Mods & Addons Copyright © 2019 DragonByte Technologies Ltd.