Dixon case could see super taxed in US
A test case involving the son of one of Australia’s best-known SMSF advisers may establish that Australian superannuation funds are taxable under US law, bringing wide-ranging implications for Australian and US citizens working across both countries, according to tax advisory firm Andersen.
Marsha Laine Dungog, a director at Andersen US Private Client Services (International) told SMSF Adviser that tax agents with clients in both jurisdictions should pay close attention to the outcome of a case currently being heard in the US between former Evans Dixon chief executive Alan Dixon and the US Internal Revenue Service (IRS).
Mr Dixon, who recently resigned as chief executive of the merged Evans Dixon Group following significant losses in one of its US property funds, has been in dispute with the IRS following alleged underpayment of taxes from income he received as part of his role with the group’s US subsidiary.
According to US Tax Court documents filed on September 17, it appears the IRS is seeking to draw Mr Dixon’s Australian superannuation fund into the case, and will likely increase his assessed deficiencies if he is not able to substantiate claims that the super is exempt from US taxation under the US-Australian income tax treaty.
Ms Dungog said while the treatment of super under Australia’s tax treaty with the US had been a grey area for a number of years, this was the first known case where the IRS had challenged a US taxpayer to substantiate claims that their super should be exempt from US taxes as foreign social security.
“There is a tax opinion in Australia that super is exempt, but the issue with exemption of Australian super as foreign social security is that it doesn’t meet [the US] concept of what social security is,” she said.
“The difference is that Australia uses a hybrid privatised social security system, and in the US our system isn’t privatised, so when it comes to seeing a super fund as social security, you have a tenuous leg to stand on.”
While super guarantee contributions were recognised as equivalent to social security in the US-Australia Totalization Agreement, they had not been acknowledged as such in the US-Australia tax treaty.
A ruling in favour of the IRS in Mr Dixon’s case could have a significant impact on Australians working in the US, as most would have been applying for the same exemptions as Mr Dixon in their previous tax returns when it came to their super earnings.
“It is going to impact a lot of Australians in the US because of the manner that they have been reporting,” Ms Dungog said.
“The takeaway is that if you took the decision that all your super is exempt and filed it under a treaty claim, it’s probably time to take a second look at that, although whether you should be filing an amended return remains to be seen until this case has been fully litigated.”
Editors note: a previous version of this article mistakenly referred to Daryl Dixon, rather than Alan Dixon, as the petitioner in this case.