• Posted on February 17, 2021

We ultimately reduced…
his effective tax rate by 34.5%.

We ultimately reduced…

his effective tax rate by 34.5%.

Our client was…

A 38 year old founder of an Australian technology business on his move to the US.

He was married with 3 children.  The business was established and profitable in Australia and due to an existing client relationship he was expanding the sales function of the business to the US.

The family looked at a lot of different parts of the country but ultimately decided to settle in California.  This was largely driven by the client’s work.  Lifestyle and tax were not factors that were taken into account.

The problem was…

The client did not understand that double tax treaties only have limited application. There are only 14 substantive articles in the US Australia treaty and the number of tax issues that require cross border coverage are infinite. The result of this is that double tax can apply in more cases than it does not.  Sometimes that is intentional because of conflicting tax policy between two countries and other times it is not.

He did not know that owning assets via an Australian trust could result in capital gains being taxed in the future at an effective tax rate of 58%, as opposed to 23.5%, once he had relocated from Australia to California.

This can be attributed to a number of factors but often it is because of the following: an Australian trust is a grantor trust, non-resident beneficiaries do not get access to the general discount, and US states are not parties to tax treaties.

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We were hired…

To ensure that the clients investment structure was tax efficient.

This involved us…

Reviewing his global assets and liabilities and assessing how the change in tax residency would:

  • impact assets that he held in structures in his own name when he moved to the US, including his shares in the business;
  • impact assets if he restructured or sold those assets while a US resident;
  • impact his Australian estate plan and the validity of his will;
  • impact the validity of an Australian life insurance and income protection insurance;
  • impact his financial planning and his portfolio allocation.

The work product consisted of a detailed memorandum addressing the various tax and compliance issues and an economic model comparing how the US tax regime would tax his local and global earnings.