Every day we receive a lot of questions about US expat taxes for US citizens living in Australia.
No wonder there is a big demand as there are over 200,000 US expats living down there. For a few years, Australia tops ratings as one of the best expat destinations. It’s the English-speaking country with high-quality living conditions, warm weather, and beautiful beaches. And it’s expat-friendly! Do you know that 1/5 of the Australian population was born outside the country?
But let’s talk about US citizens residing there. Well, if you are an American living in Australia and thinking you escaped the Uncle Sam, that’s not quite true. Whether you are a US citizen or a Green Card holder living abroad, you should file a tax return each year. There are filing income thresholds and if you earn above it, you need to say hi to the IRS by June 15th (automatic deadline for US expats).
Do you want to have a free 20 min phone consultancy call with US tax expert? Contact us now.
Filing US tax returns while living in Australia
Besides filing US tax returns while living in Australia, many Americans abroad also have to submit an FBAR. It stands for Foreign Bank Account Reporting and it’s reported on FinCEN Form 114. The regular due date is April 15th, 2018. However, there is an automatic deadline extension to October 15th, 2018.
Being required to file an annual US tax return doesn’t necessarily mean you have to pay it! In fact, many Americans abroad don’t owe any taxes! There are few provisions which prevent double taxation as well as help US expats to save money on their tax bills. A most popular option among self-filing US expats is the Foreign Earned Income Exclusion. It allows excluding USD 104,100 (this amount is for 2018 taxes) of foreign earned income. Please note that most of the US international tax accountants recommend using a Foreign Tax Credit instead. It has a few advantages over FEIE. The main difference between these two is Foreign Tax Credit allows to reduce the tax on remaining income based on the taxes paid to the foreign government.
Australian Tax rates and Who Qualifies as Australian Resident
The Australian version of the IRS is The Australia Tax Office and it’s a primary tax collection agency there.
Tax Tip 1: You need to have a Tax File Number (TFN) to file Australian taxes. It’s equivalent to the Social Security Number in the US. It’s a unique number and assigned for life. If you don’t have such a number, then you will have to pay taxes on both wage and investment income. You can obtain TFN even as a temporary resident.
Speaking about Australian Tax rates it’s worth mentioning that the tax system is both graduated and progressive. However, the tax tables are different for residents and non-residents.
First of all, let’s define how one can be considered to be an Australian resident for tax purposes. A person can be a tax resident if they meet one of the following criteria:
- Always resided in Australia
- Moved there permanently
- Lived in Australia over half the tax year unless if a person’s normal home isn’t in Australia and there is no intention to live within Australia permanently
- Lived in Australia for at least 6 continuous months, had a single job and a single place.
Still unsure if you are a tax resident? Check out the official website of the Australian Taxation Office here to determine if you are a resident for tax purposes.
The following are the rates for the 2017-2018 financial year. Source: The Australian Taxation Office.
Tax table for residents
| Taxable Income | Tax on this income |
| 0 – $18,200 | Nil |
| $18,201 – $37,000 | 19c for each $1 over $18,200 |
| $37,001 – $80,000 | $3,572 plus 32.5c for each $1 over $37,000 |
| $80,001 – $180,000 | $19,822 plus 37c for each $1 over $80,000 |
| $180,001 and over | $54,232 plus 45c for each $1 over $180,000 |
Tax table for non-residents
| Taxable Income | Tax on this income |
| 0 – $80,000 | 32.5c for each $1 |
| $80,001 – $180,000 | $28,275 plus 37c for each $1 over $80,000 |
| $180,001 and over | $62,685 plus 45c for each $1 over $180,000 |
In addition, there is a 2% Medicare levy.
US tax on Australian Superannuation
Superannuation is an Australian version of 401(k) program, but mandatory and on a bigger scale. Employers must contribute 9,5% of employee’s base wages if they earn over AUD 450 in a month. However, employee contributions are voluntary. Contributions by employees are deductible on Australian taxes, but not on US taxes. Also, access to superannuation funds is restricted to those who are of retirement age unless they are one of a number of special circumstances.
Australia – US Double Tax Agreement
There is a US tax treaty with Australia, which is in place to avoid double taxation. If you want to know more about the rules of US expat taxes for US citizens living in Australia, you can read the document here. Most of the treaty is about property and commerce. It also has certain provisions and established the right of the respective governments to impose taxes on certain types of income depending on where the income was earned.
You can find most of the rules regarding double taxations in this tax treaty. It’s Article 22 which covers the topic of the Australia – US Double Tax agreement. For example, this tax treaty excludes the pension, social security, and annuity income which a resident receives in their home country.
What does it mean? Well, for example, let’s imagine you are a US citizen living in Australia and considered to be a resident there. You receive income from your Australian pension and you will exclude it from your US expat taxes. There are other cases when the saving clause за the tax treaty overrides Article 22. That can lead to requiring you to pay taxes on your income from Australian pension.
Foreign Income and Australian taxes
If you are a non-resident, then you don’t have to report foreign earnings. Temporary residents might need to report this kind of income but it doesn’t include investment or passive income earnings. Lastly, Australia residents have to reports global income and there are some methods available to avoid double taxation.
What about US expat taxes for self-employed US citizens living in Australia?
If you are a self-employed US citizen living in Australia, then your tax situation is a bit different.
Companies in Australia have corporate taxes at flat 27,5% rate for entities with a turnover of less than $25 million. And these company taxes must be pre-paid quarterly based on what is anticipated to be owed. It’s important to know that your corporation can be considered as an Australian entity even if it’s not incorporated there. It’s enough to carry out the business in Australia and have Australian ownership or control.
Just as in the US, different business structures have different tax responsibilities and obligations. They as well can be structured as sole traders, companies, partnerships or trusts.
Last, but not least is Australian GST. The GST stands for Good and Services Tax and it’s a value-added tax that applies to most goods& services transactions, excluding certain items. GST has a flat rate of 10%. If you are a business owner with over $75,00 of receipts, you need to register with the government and collect GST.
Tourists are eligible to receive a refund of the GST they paid during the prior 2 months. They will need to present items and receipts when leaving the country.
Do you need help with filing US expat taxes from Australia? Contact us now to receive a free 20-min phone consultancy! We have helped over hundreds of Americans in Australia to file their US taxes and catch up with the late filing without any penalties.
Does a US citizen who has lived permanently in Australia, is married and has children there to an Australian, file a US 1040-form for the total annual $200.00 interest income from US investment account for her inherited investment if she claimed it in her Australian tax return?
Hi Liisa! Is the $200 your only income in 2019? You must report your worldwide income if you crossed the filing threshold. As a married filing separately (your spouse is a Non-Resident Alien) your filing threshold is $5.
I have two questions: I am helping my niece file her US 1040 return. She makes about A$32,000 per year over the last three years. The period she filed her Australian return was for 1 July to 30 June. The US files 1 January to 31 December. Do we divide two years’ worth of the Australian return to create the US return??
This also has to do with the attachment to the US return. She has no US W-2, so I suppose I attach her Australian return showing income in Australian $ and translate to US$.
Please advise, thank you.
Hi Robert! You prorate the figures to match the US tax year and you convert her income and report it on form 1040 in USD.
Hi Oliver,
I will be moving to Australia later this year or early next, restrictions permitting. My company has appointed me a tax advisor (from the Big 4) that has told me that my superannuation account will be considered a PFIC by the US and gains will be subject to US tax, even if I don’t make any contributions over the required 9.5% or take any distributions/realize any gains. Is this the case? I’d like to find some evidence to counter this point but it seems to be a bit of a gray area, I’m not sure if they’re saying that to be safe on their end or if it’s actually the case. I’m many decades shy of retirement age if that gives any helpful context.
Thanks in advance,
Nick
Hi Nick! Superannuation is a trust, a 402(b) plan to be specific. There is room to discuss if the underlying investment options are PFIC, but the superannuation itself is not a PFIC since only corporations can be PFIC and the superannuation is a trust.
My wife is an Australian Citizen and I am an Australian Permanent resident, we are also both US Citizens and >65 years of age.
We are considering moving back to Australian after 25 years in the US but are concerned about taxes.
Since we cannot file jointly in Australia, are 401k distributions declarable 50pct each as income or 100pct by the fund holder and are social security benefits taxable in Australia ?
We do not anticipate having any Australian income.
Hi David,
US Social Security benefits would only be taxed in the US, not in Australia.
Article 18, paragraph 2 of the US Australia tax treaty:
“Social Security payments and other public pensions paid by one of the Contracting States to an
individual who is a resident of the other Contracting State or a citizen of the United States shall be
taxable only in the first-mentioned State”
a US client working in Australia for 4 months, making approx. $500,000 per year; a) will they pay higher taxes in Australia, b) am I correct that this tax will be credited towards US income Tax. c)is there any advantage/disadvantage to using their corporation?
Hi Jim,
Yes, the Australian tax rate is generally greater than the US one. As such, you can avoid US tax by using the foreign tax credit.
Using a foreign corporation would involve having to navigate the Subpart F & GILTI income rules. We generally use it, aside from any foreign tax reason, to avoid paying social security tax. But there is a social security totalization agreement between the US and Australia, so that would not be a valid reason either.
All the best,
Olivier
Please advise me of my best claiming option/s in filling my returns. My wife is Aust citizen and I’m both Aust & Us citizen. Not sure what would work better to my advantage if I can file my returns as single, or married or separated as I spend quite of bit of time in the US but reside in Aust permanently . My understanding is that wife does not need to disclose any of her income given that she isn’t a resident alien or citizen in the USA.
Hi Bob,
That’s right. By default (and that would remain the case in 98% of the cases) you would file as married-filing separately. If you have tax owing, we can explore the married-filing-jointly option.
All the best,
Olivier
Hi. I am an American citizen and i have been living as an Australian resident in Australia for 20 years and have not filed any us income tax forms during that time. What do i need to do at this point in regards to the irs as i will be 10 years away from being able to receive ss benefits. I am unable to request a change of address with ss without first requesting change of address with the irs first. Would i be able to file my income tax returns saying back that far though i had no income until the past 6 years?
Hi Angeline,
You can bring yourself into compliance by taking advantage of the Streamlined Compliance Program. It’s an amnesty program that the IRS offers to those who did not know about their filing obligation. You would only need to file 3 delinquent tax returns and 6 years of FBARs. Contact us at info@1040abroad.com if you have any questions.
All the best,
Kasia