Understanding the financials of being born global

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Interview by Molly O'Brien

We know that living in a foreign country doesn’t come without a variety of challenges, one of the major ones being financial.

David Laanemaa and Julie-Anne Laanemaa are here to assist with such issues. Their company, Back9 Capital Management, offers professional expertise and practical tax and accounting, finance, and investment experience to help their clients realise their goals.

Born out of the need to offer high net worth individuals and family groups, sophisticated individual investors, business owners, senior executives and professionals a bespoke service, they specialise in providing investment and funds management, tax and accounting, estate planning, superannuation and transition to retirement strategies.

Advance spoke to David and Julie-Anne about how people can become more educated about their finances, the cultural differences between the US and Australia, and what sets Back9 apart from its competitors.

Could you provide a brief history of your career and why you started Back9?

David: After graduating from the University of New South Wales with a Bachelor of Commerce, I qualified as a chartered accountant with Ernst and Young. I then worked for different major corporations in the private sector, gaining a solid accounting and investment banker background before I ventured out on my own in 1991.

I saw an opportunity for dynamic financial forward planning and in 2003 I received my Certified Financial Planner status. This allowed me soon after to obtain an Australian Financial Services License (required by Australian law to provide financial services to clients) for Back9.

I have many long-standing clients, some of whom even go back to the day that I started Back9. Many of these clients have off-shore assets or business interests. The expansion of Back9, particularly our growing presence in the US, has been organic driven by the fact that in the past decade American migration to Australia has increased to the extent that Australia is now home to the 6th largest American expat community in the world and of course the important presence of the Aussie expat community in the US.

This cross-border migration continues to drive a lot of recent activity because of the specialised services we offer for dual citizens of the US and Australia both of whom have distinct sets of issues. Increasingly, we also act for Aussies living or seeking to establish themselves or their businesses in the US. It's an all-encompassing service that we offer, and we are able to provide the whole raft of services required to meet client needs. 

Julie-Anne:  I graduated from UCLA with a BA (Hons) in political science and on my return to Australia in 2004 attained my LLB (Hons) from the University of Sydney. I proceeded to work for a number of law firms, as well as PWC in Private Clients. My experience in commercial law includes sale and purchase of businesses, tax, corporate and trust structuring, and estate planning, and my corporate experience includes M&A, ASX listing procedures, corporate governance and compliance, equity capital raisings, and due diligence. My experience was a natural fit with Back9 and I joined the firm full time in 2015.

Why do you think what you do is important?

David: What I've come to realise is that often people don't completely understand the problems that they have. And in that sense, people depend on us to work through the issues and provide the right advice. I'm often in a situation where I've had to unravel problematic things that had been done in the past.

Do you feel that pressure to get it right, having other people's wellbeing and welfare in your hands?

David: There is a pressure in one sense because in many ways you potentially DO have someone’s financial life in your hands and we can’t afford to get It wrong. However, it boils down to the communication that you have with your client so that you are really able to drill down to the essence of their affairs and/or what they are trying to achieve. If you can work well together, that pressure eases to a degree.

What sets Back9 apart?

Julie-Anne: I’ll say something that David probably won't, but what sets Back9 apart is actually David and his unique ability to build longstanding relationships. I've had the opportunity to work with a lot of professionals, lawyers, accountants, etc. in the “big end of town” at the top of their game and the level of service that David specifically provides really does set him apart from a lot of other people. He will never not pick up the phone for a client ever (which can be a little irritating for me!) and he always goes “the extra mile” - but that's exactly what I would like (and expect) as a client.

Do you have to wear different business hats when dealing with clients from different countries around the world?

David: It’s very different. What happens in Australia and what happens in the US are two totally different aspects of a person's financial affairs. It literally is apples and oranges.

Julie-Anne:  Culturally speaking, yes. As a dual Australian / American citizen who has worked extensively with both Americans and Australians, I can say that though we speak the same language, Americans and Australians are very different and one has to be cognisant of those differences and adjust accordingly.

Have you spent any time living in the US?

David: No, but I’ve spent a lot of time there during the last 10 years. Julie-Anne is American and lived there for 30 years. I think we both understand the cultural differences between the US and Australia, which is very important for our work.

Julie-Anne:  I am the quintessential “global citizen”.  I was born in Sydney to Aussie parents but spent my early years in Nassau, Bahamas, then junior high and high school in Connecticut, followed by a brief stint in Kingston, Jamaica, then to NY, Honolulu, back to Sydney, after which I finally settled in Los Angeles.

How big is the cultural difference, and how does it impact what you do?

David: The cultural difference is substantial. When working with people, the better the understanding of their culture, the easier it is to figure out what to do for them. A lot of people come to me because they find that their advisors are in a particular silo, either Australian or American, and they don’t understand what the serious consequences can be for those clients who have cross-border issues. When there is incomplete, or sometimes no communication between disparate advisors, the client is caught in the middle, sometimes to their detriment.

Does your industry have a global language?

David: Not particularly, and the problem is getting worse because people are expanding at a far greater rate in terms of globalising their affairs and spreading themselves and assets over many countries. That brings a plethora of financial and tax issues.

Julie-Anne: Agreed. Americans have a very distinct set of issues that citizens from other countries do not have, namely reporting requirements to the IRS. For instance, if you're an Australian living in the United States, and provided that you are not earning income in Australia, you are not required to file Australian taxes. On the other hand, if for instance, you are you're an American living outside the US, under age 65 and single, and earn $10,400 or more, you must file a US federal tax return declaring your worldwide income - no matter your residence.

Many Americans expats don't know this. And there can be severe penalties and ramifications for not complying – I’ve seen many clients come to David in a panic once they have been made aware of their obligations! Or even worse, when David explains to them what their obligations are and the consequent ramifications of non-compliance – it’s a sobering moment for them.

It’s not just filing your taxes. For instance, if you have a green card and you're living in the US (or an American expat living abroad), you must report any foreign bank accounts you have that exceed $10,000, cumulatively. And that seems like such a small thing but it is often overlooked. And I think that's where David is really good at what he does because he really gets to know his clients well and is able to tease out relevant details that may otherwise be overlooked.

Why isn't there more education on these types of issues?

David: They're a complex series of laws, and people are becoming more aware of it as globalisation increases, but there are very few people that have the capacity to “connect the dots”. If you're trying to advise someone, and there are too many people involved in the chain, invariably no one is going to get the total picture from start to finish. And that is often where mistakes are made.

Julie-Anne: It’s also a cultural issue. I think Australians are different because they do travel so much and they do go to live abroad so much. Americans, not so much. You could find so many Americans who have never travelled, and when they do the US government doesn't make it abundantly clear when you leave the country what your obligations are. In some instances, and we have a number of clients in this category, they moved from the US to Australia many years ago, pre-FATCA and FBAR requirements (which were only implemented within the last 10 years), so those Americans that have been living abroad for some time have little way of knowing the changes to US tax law.

What’s an example of issues people are unaware of?

Julie-Anne: Apart from IRS tax and reporting obligations, estate planning. It is a really important issue for Americans because there is federal estate tax on your death if you're an American and provided you're over a certain threshold amount, whereas we don't have that here in Australia. There are ways to mitigate the complexities, but it's not straightforward and really does take an holistic approach to your client’s affairs.

David: The other thing that a lot of Australians don't realise, when they've worked in the US on a green card and surrendered it upon returning to Australia, they are treated as a non-citizen non-resident. Now, some of them may continue to have property located in the US. If something were to happen to those people and they don't have their affairs in order, then their estates will basically lose 40 percent over the value in excess of US $60,000.

Julie-Anne: I think what's really motivating expat Americans now more than ever is not just the concept of the IRS coming after you but the possibility that they could have their passports revoked or not renewed if they are not compliant with their taxes or not up to date. Over two years ago, in H.R.22, the US Congress gave the IRS a new method to collect taxes. Internal Revenue Code Section 7345 is called, “Revocation or Denial of Passport in Case of Certain Tax Delinquencies.” If you have a seriously delinquent tax debt § 7345 authorizes the IRS to certify that debt to the US State Department for action. The State Department generally will not issue a passport to you after receiving certification from the IRS.  The law isn't limited to criminal tax cases, or even cases where the IRS thinks you are trying to flee. The idea of the law is to use travel as a way to enforce tax collections.

According to the IRS website, the IRS began sending certifications of unpaid tax debt to the State Department in February 2018.

How can people become more educated about their financial responsibilities?

David: It does get down to the particular individual. We get a lot of inquiries, and I spend a lot of time talking to people on the phone. In this electronic society of ours, at some point in time, tax records and immigration records of people are going to be matched up. As of the 1st of January 2018, if you owe more than US $50,000 to the IRS, they can remove your passport from you. If you move $10,000 from out of the country, you're on the radar. Dealing with the IRS (falling afoul of which can lead to one or both of criminal and/or civil proceedings) can be difficult, so you have to get to them before they get to you.

Julie-Anne:  Americans have a very strong allegiance to their country, but increasingly Americans are choosing to renounce their citizenship because of the onerous process of yearly tax compliance obligations.

Does it matter where you're based?

David: Not really – we can, and do, work from anywhere in the world, from Sydney, LA, NY, London, Amsterdam or Noosa. For instance, I recently had a situation where I'd been acting for a woman who is a partner in a law firm out of Canada, but she lives in Los Angeles. I arranged for the preparation of her tax returns from Sydney, liaised with my people in New York. We arranged to file Canadian state and federal taxes, and US state and federal taxes from Sydney.

That’s all part and parcel what the Internet can provide you and our global community. It's mostly making telephone calls at crazy hours, but everything else is pretty seamless once you have your networks in place and understand who the other person is at the other end of the phone.