Filing US taxes with foreign tax statement that is not calendar year

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Filing US taxes with foreign tax statement that is not calendar year


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Old 9th July 2020, 03:03 PM
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Default Filing US taxes with foreign tax statement that is not calendar year

Has anyone had any experience with filing US taxes for a non-US investment where the foreign tax statement is not based on the calendar year?

I'm an Australian living in the US and have some investments in Australia. The Australian tax year is July to June - not Jan to Dec calendar year like in the US - so all the tax statements I have for these Australian investments are for July - June time periods.

I've contacted both my investment advisor in Australia, and the Australian investment companies directly and they are not able to provide me with any tax statements or information other than for the July - June Australian tax year.

I know that Australia is not the only country that has a non-calendar tax year. Has anyone been in a similar situation and how did they file their taxes?

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Old 10th July 2020, 12:31 AM
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I assume you are referring to how to claim a tax credit for taxes withheld on your Oz sourced income.

Its pretty straight forward to deal with different tax years.

There are two ways to do this. You can choose to use a cash basis of accounting or an accrual basis of accounting. I will try to explain the two methods at a high level.. feel free to follow-up with any clarifying questions.

Cash Basis
If you go down the cash basis you use the date that the tax was paid.

For the sake of simplicity, if a foreign tax statement covering 1 July 18 - 31 June 19 then I would use 1 July 19 (or the first business day following if a weekend) as the date the tax was paid as technically that is the day from which you are technically liable for the tax (even if it was withheld earlier.)

This method will mean there is a misalignment between the US tax year that the income was received, and the tax year that the tax was paid to the ATO.

This is by far the easiest approach, but the misalignment between income and tax can cause some issues in the first few years where you may or may not have built up a pool of excess tax credits that you can use.

Technically with the cash basis you can also use the the date the tax was withheld as the date paid, but then it can get messy if you get a refund (for example because deductions reduce your actual tax liability below the amount withheld) - and then trying to apportion the refund between US tax years.


Accrual Basis

This method you claim a tax credit for the taxes that you accrue over the US tax year.

Assuming your investment income in Australia is less than AUD 90,001 this method is pretty straight forward because below that amount the non-resident tax rate is a flat 32.5%.

Using the accrual method you would basically accrue the a tax debt of 32.5% on each distribution.

That would then give the total AUD tax accrued during the tax year.

If you use the accrual method, then you use the average exchange rate for the tax year to which the taxes relate and not the spot rate to convert AUD into USD.

The advantage of this method is that both the accrued tax and income earned are always aligned. So you don't have the risk associated with the misaligned tax years as you do with the cash basis.

But you are meant to "settle up" so that if you get a refund because your actual tax liability is less than the amount withheld. This is done by filing an amended return the following year.



Its worth noting that you can choose either cash or accrual method, and you can change from cash to accrual, but once you start using the accrual method you are stuck with it.


Another Uniquely Australian thing to consider.

As an aside, given you do not mention the type of investment income.... Australia's system of Franking credits/imputation credits can be problematic from a US tax perspective. With a few limited exceptions you can only claim a tax credit for income tax that you are personally liable because the company is liable for the tax not you, there are no Oz taxes on those dividends to offset the US tax liability on the income.

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Old 22nd July 2020, 10:30 AM
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"Another Uniquely Australian thing to consider.

As an aside, given you do not mention the type of investment income.... Australia's system of Franking credits/imputation credits can be problematic from a US tax perspective. With a few limited exceptions you can only claim a tax credit for income tax that you are personally liable because the company is liable for the tax not you, there are no Oz taxes on those dividends to offset the US tax liability on the income."


This is one of the many things that I can't seem to agree with when it comes to Australia. It just seems egregious to me.

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Old 22nd July 2020, 03:52 PM
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Sorry for the slow follow up, but thanks for the detailed response.

My concern isn't specifically about tax credit, but how to report income from a managed investment fund - for example interest or dividends - when the tax years don't align and my investment firm can't provide monthly statements with the level of detail required.

After reading through your reply and doing some more research I decided to just hire a tax accountant who works with both Australian and US taxes and have them sort it out. They've instructed me to take the average of the Australian tax statements for the overlapping years to get the numbers for the calendar year. For example, take the average of the dividends from 2017-2018 and 2018-2019 tax statements to get a number for 2018.

Not sure what to do next year when 2020 US taxes are due in April, but the Australian tax statement for 2020-2021 doesn't come out until July, but I'm going to follow up with the tax accountant to discuss.

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Old 23rd July 2020, 01:05 AM
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I would have thought that interest or dividends would have been constructively received by you on a date, and that you could use that date for the purpose of determining which tax year - rather than averaging..

But, ultimately so long as you are consistent, I don't think it really matters to much.

As to what to do next year...

Use Form 4868 to apply for a 6 month extension, which would move your filing deadline to 15 October, which handily is very close to the Australian filing deadline (31 October).

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Old 23rd July 2020, 09:18 AM
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Quote:
"Use Form 4868 to apply for a 6 month extension, which would move your filing deadline to 15 October, which handily is very close to the Australian filing deadline (31 October)."
I didn't even know that. Thanks for the tip, Moulard!

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Old 23rd July 2020, 10:20 AM
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Quote:
Originally Posted by Andrew Lowe View Post
This is one of the many things that I can't seem to agree with when it comes to Australia. It just seems egregious to me.
I agree, its basically tax relief for the wealthy.

Alas, fear that its removal will bring down governments in Australia has been a hurdle to its removal. Political scare campaigns over it are not uncommon.

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Old 23rd July 2020, 10:23 AM
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Quote:
Originally Posted by Andrew Lowe View Post
I didn't even know that. Thanks for the tip, Moulard!
Glad to be of service.

Do bear in mind that it is a filing extension not an extension to the payment deadline.

If you owe, interest accrues from 15 April - even if you write a letter asking for an extension until 15 December (which you can also do).

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Old 23rd July 2020, 04:57 PM
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Quote:
Originally Posted by Moulard View Post
I agree, its basically tax relief for the wealthy.

Alas, fear that its removal will bring down governments in Australia has been a hurdle to its removal. Political scare campaigns over it are not uncommon.
Not really. Double taxation would reduce investment by Australians in Australian companies. Agree that removal would be a political non-starter, and that the wealthy benefit... but so do millions of others who would rather the government not tax them twice! Makes sense and other countries should follow.

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