There’s much to love about Australia – the gorgeous beaches, pleasant weather and laid-back culture, among others. The fact that locals speak English is just the icing on the cake for a US expat looking to move abroad. Did you know that over one-fifth of the Australian population was born outside the country? Australia has a points-based residency system, which makes it accessible for anyone with sought-after skills and education. While you might be ready to move to Australia today, it’s important that you’re aware of how your US expat tax return will be affected by living abroad.
Filing Expat Taxes in Australia
As you may be aware, if you’re a US citizen or permanent resident, you’re required to file an expat tax return with the IRS each year – regardless of where you happen to be living at the time. It’s also possible that you may need to file an informational return on your assets held in foreign bank accounts. The US is one of few countries that requires you to file taxes on your worldwide income, though it does have provisions in place to help protect you from double taxation, such as:
Foreign Earned Income Exclusion: Allows you to exclude the first $101,300 of your 2016 foreign income ($102,100 in 2017) on your expat tax return
Foreign Tax Credit: Allows you to lower your tax bill on the remaining income by certain amounts you paid to a foreign government
Foreign Housing Exclusion: Allows for an additional exclusion on certain amounts paid for household expenses while living abroad
Taking the time to properly plan for tax season will help ensure you are able to take advantage of these savings in order to minimize or eliminate your US tax bill. For more tips and ways to save, download our tax guide for Americans working overseas.
Income Tax Rates in Australia
Similar to the US, Australia has graduated and progressive tax rates – which means as your income increases, the tax rate on every additional dollar of income increases as well. The tax tables in Australia differ for residents and non-residents, so it’s important to know which category you fall into, since the definition of a resident for tax purposes might be different than that of residency purposes.
You’re a resident if you reside in Australia and are living there permanently. If you’ve lived and worked continually in the country for more than six months and continue to reside there, you’ll be considered a resident for tax purposes unless you can prove otherwise.
The tax rates for the 2016-2017 financial year, from the Australian Taxation Office, are:
|Taxable Income||Tax on the 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|
|$87,001 – $180,000||$19,822 plus 37c for each $1 over $87,000|
|$180,001 and over||$54,232 plus 45c for each $1 over $180,000|
Additionally, there is a 2% Medicare levy and an additional temporary 2% levy on incomes over $180,000.
Taxation of Foreign Residents in Australia
If you aren’t considered an Australian resident for tax purposes, you’ll be subject to special tax rates. In general, if you have earned income in Australia and don’t qualify as a resident, then you’ll be considered a foreign resident. See below for rates:
|Taxable Income||Tax on the Income|
|0 – $87,000||32.5c for each $1|
|$87,001 – $180,000||$28,275 plus 37c for each $1 over $87,000|
|$180,001 and over||
Foreign resident taxpayers in Australia are not subject to the 2% Medicare levy that residents are. However, they are still subject to the 2% temporary levy on incomes above $180,000.
Tax Due Dates in Australia
Australia’s financial year begins July 1st and ends June 30th of the following year, and your Australian tax return must be filed by October 31st. If you choose to hire a registered tax agent, you must have registered as a client with them by that date. When you register with a tax agent, you earn an additional extension until May 15th of the following year – or March 31st, for certain high-income taxpayers.
US – Australia Social Security Agreement
Employees in Australia will not be subject to US Social Security taxes. Because of the US – Australia Totalization Agreement, self-employed expats in Australia can choose whether they prefer to contribute social security to the US or Australia. For a majority of Australian residents, their participation in a state-sponsored retirement plan will be limited to the Superannuation Guarantee, which we’ll describe in further detail below.
In Australia, Superannuation is similar to a mandatory 401k plan, but on a much larger scale. Employee contributions are voluntary; however, employers are required to make a compulsory contribution of 9.5% of employees’ base wages if they earn over $450 per month. Employee contributions are tax-deductible for Australia, but not for US taxes. The employer contributions will be taxable as income on a US Tax Return, and can’t be excluded with the Foreign Earned Income Exclusion. However, they will be considered foreign sourced income for the purpose of the Foreign Tax Credit. Like a 401k, accessing Superannuation funds will be restricted to those who have reached retirement age or met a special circumstance in order to do so. Check out our additional resources on Superannuation, which may answer your questions about this complex topic.
Taxation of Foreign Income in Australia
It is not a requirement for non-residents to report their foreign earnings to the Australian Taxation Office. Temporary residents may be required to report foreign earned income, but will not have to report earnings from investments or other passive income sources. Australian residents must report their global income – though, like the US, Australia has provided methods to help taxpayers avoid double taxation.
US – Australia Tax Treaty
The tax treaty defines the terms that set the relationship between the US and Australia and it provides a ‘tie-breaker’ of sorts that helps determine in which country a taxpayer is considered a resident. This is primarily utilized by those who have doubts or need clarification as to their residency status. For the most part, the treaty relates to commerce and property, while establishing the right of the respective governments to tax certain types of income based on the jurisdiction in which is was earned.
In particular, Article 22 lays out the rules for relief from double taxation. Also worth noting, the treaty excludes from double taxation pensions, social security and annuity income that a resident receives while in his country of residency from taxation by the other country. In some cases, if you live in Australia and you’re a resident of Australia, but a citizen of the US, the income you receive from your Australian pension will be excluded from your expat tax return. In other cases, the savings clause of the US treaty will override Article 22, which will require you to pay taxes on your Australian pension income.
Self-Employed American Expats in Australia
The corporate tax rates in Australia are 28.5% for companies with revenues of less than $2 million, and company taxes must be pre-paid quarterly based on your anticipated annual amount owed. Your corporation doesn’t necessarily need to be incorporated in Australia for it to be considered an Australian corporation – but it must exclusively carry out business in Australia and have Australian ownership or control.
Businesses may be structured as sole traders, partnerships, trusts or companies in Australia, and like in the US, all have differing legal obligations and tax responsibilities.
Other Taxes in Australia
There is a 10% Goods and Services Tax (GST), a type of value added tax that applies to most transactions related to goods and services, with the exception of a few excluded items. If you’re a business owner with more than AUD $75,000 in receipts, you must register with the government and collect the taxes.
If you’re a tourist in Australia, you’re eligible to receive a refund of the GST paid over the previous month upon the presentation of the items and receipts when exiting the country.
The best thing you can do to prepare for filing your expat tax return is to educate yourself on the requirements and make a note of the deadlines so you’ll have ample time to gather the needed information.
Need Help with Your US Expat Tax Return While Living in Australia?
Our team of expat-expert CPAs and IRS Enrolled Agents are here to help you navigate the often-complex nature of US expat taxes to make filing your expat tax return a more hassle-free experience. Contact us today to learn more!