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Is an Australian resident & citizen subject to US income tax

on annual IRA required minimum...
Is an Australian resident & citizen subject to US income tax on annual IRA required minimum distrbutions from a US IRA account which the person established & contributed to years before while working in the US. The person no longer spends anytime in the US & no longer has a green card. If it is not taxable in the US under the US/Australia tax treaty, how is it reported on Form 1040NR?
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6/1/2013
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,011
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Welcome. THANK YOU for choosing Just Answer. My name is XXXXX XXXXX my goal is to help make YOUR life, a little...LESS taxing.

Thank you for your patience.

Q: Is an Australian resident & citizen subject to US income tax on annual IRA required minimum distributions from a US IRA account which the person established & contributed to years before while working in the US.

A: You would be subject to NRA (Non resident alien withholding) unless you complete a Form W8- Ben and provide it to the payer in a timely manner. As there is a treaty between the U.S. and Australia, completing, and submitting the Form W8-Ben in a timely manner will exempt you from the withholding requirement. The Form W8-Ben is used to certify foreign person status and beneficial ownership of income.

You can refer to the following IRS webpage for more detailed information relating to NRA withholding requirements;

http://www.irs.gov/publications/p515/ar02.html#en_US_2013_publink1000224779

---------------------------------------------

Link to Form W8-Ben/instructions:

http://www.irs.gov/pub/irs-pdf/fw8ben.pdf
http://www.irs.gov/pub/irs-pdf/iw8ben.pdf

Please let me know if I can be of further assistance to you regarding this matter.

Thank you again for using JUST ANSWER.
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Customer reply replied 4 years ago

Thank you for covering the withholding issue. My question goes a little deeper as follows: is the IRA distribution taxable to this person in the US? If not, how do they report on Form 1040NR that it is not subject to tax under the US/Australia tax treaty?

Hello again Alan,

You are welcome. I will take a look at the Form 1040NR and get back with your shortly. Thank you for your patience.
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Alan,

Thank you for your patience. I had to read over more than just the Form 1040NR. As IRA distributions are considered ECI (Effectively Connected Income), you would report the distribution amount on Line 16A and 16B of the Form 1040NR. Then on page 5, the Schedule OI, you will complete this form. Section L is where you will claim the exempt income. You would reference Article 22 (Relief from double Taxation) in this section.

please let me know if this clarifies matters for you.
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Customer reply replied 4 years ago


The way I read the treaty about reflief from double taxation is that the person would be eligible for a foreign tax credit in Australia for the tax paid to the US instead of it not being taxable in the US?

Hello again Alan,

Article 22 (Relief from double taxation). An Australian citizen will be entitled to a tax credit on their Australian tax return for taxes that are paid in the U.S. As the person will possibly be exempt (based on completing and submittinf the Form W8-Ben timely), Article 22 would not apply on the form 1040NR. Reading over the treaty again, Article 21 is the article that should be referenced on the Form 1040 NR. Remember, the most important thing is to make sure that the form W8-Ben is completed and submitted timely so that the individual will be exempt from the mandatory withholding.
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Customer reply replied 4 years ago


Thank you very much for all your help. This was very helpful to me. Thanks again.

Alan,

You are very welcome. As there has been confusion with some customers in the past, please note that in order for me to receive credit for assisting you, you are required to rate my answer an ok or higher. Feel free to check back with me in the future if you have other tax related questions.

Thank you again for using JUST ANSWER.
Tax.appeal.168
Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 4,011
Experience: 3+ decades of varied tax industry exp. Tax Biz owner
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Alan,

Thank you very much for the high rating and the generous bonus. I do appreciate it. Even if prompted to do so, there is no need to respond to this post or rate again.
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