Tax Guide for US Expats Living in Australia
- Living as an Expat in Australia
- Australia at a Glance
- Australian Taxes for US Expats
- Who Has to File Taxes in Australia?
- Who Qualifies as a Tax Resident in Australia?
- What Types of Taxation Does Australia Have?
- Does the US Have a Tax Treaty with Australia?
- Does the US Have a Totalization Agreement with Australia?
- What Tax Forms Do Americans Living in Australia Have to File?
- US Tax Forms for Expats in Australia
- What Tax Deductions Are Available for Expats Living in Australia?
- Navigating Tax Compliance for US Expats in Australia
Living as an Expat in Australia
Living as an expat in Australia can be an exciting and enriching experience, but it also comes with its own set of challenges. Here are some things to consider if you’re thinking about relocating to Australia.
Firstly, Australia is a large and diverse country with many different regions, each with its own unique culture, climate, and lifestyle. It’s important to research the different areas of Australia and find one that suits your needs and preferences.
Secondly, the cost of living in Australia can be high, especially in cities like Sydney and Melbourne. Housing, food, and transportation costs can add up quickly, so it’s important to budget and plan accordingly.
Lastly, US citizens living abroad are still subject to US taxes, as well as Australian taxes. Expats may be eligible for certain tax credits and exclusions to minimize their tax burden, but it’s important to work with a tax professional who is familiar with the tax laws of both countries.
But what are Australian taxes like for US expats? Let’s take a look.
Australia at a Glance
- Primary Tax Form for Residents: Income tax return (ATO individual tax return)
- Tax Year: July 1 to June 30
- Tax Deadline: October 31 (for individuals)
- Currency: Australian Dollar (AUD)
- Population: Over 25 million
- Number of US Expats: Approximately 90,000
- Capital City: Canberra
- Primary Language: English
- Tax Treaty: Yes
- Totalization Agreement: Yes
Australian Taxes for US Expats
In most cases, American citizens living in Australia have to file tax returns with both the US and Australian governments. This can get complicated. Plus, Australia uses a different tax year from the US, meaning that expats will need to juggle both.
To help clear up what taxes you may need to file—and when—here’s an overview of Australian taxes for expats.
Who Has to File Taxes in Australia?
Whether or not an expat has to file an Australian tax return—or “lodge” it, as they say down under—depends on their residency status and income.
Australian tax residents are required to file a tax return if their annual income is over 18,200 Australian dollars (AUD). If you are required to file as a resident, you will have to report your worldwide income, not just income that came from an Australian source. The good news is that Australia has various mechanisms in place—such as the US-Australian tax treaty—to help you avoid double taxation.
Non-residents must file a tax return if they have any Australian-source income at all, with no minimum threshold. Non-residents are also taxed at higher rates than residents. However, unlike residents, non-residents are only required to report Australian-source income, not worldwide.
Who Qualifies as a Tax Resident in Australia?
Residency status can have a major impact on Australian expat taxes. So what qualifies you as a tax resident, non-resident, or temporary resident?
An Australian tax resident is someone who meets the standards of any of the following four tests:
- Resides test: if you live permanently (or for a considerable time) in Australia and have a settled or usual home in the country, you are considered a resident under the resides test.
- Domicile test: If your primary permanent domicile, or home, is in Australia, you are considered a resident under the domicile test.
- 183-Day test: If you’ve spent at least 183 days in Australia, you are considered a resident under the 183-day test. (The only exception to this is if you establish that your usual place of abode is outside Australia and that you have no intention of taking up residence in Australia.)
- Commonwealth superannuation fund test: If you are employed by the Australian government or an Australian company and eligible to contribute to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), you are considered a resident under the Commonwealth superannuation fund test (as will your spouse and any children under 16).
If you do not meet any of these qualifications, you will generally be considered a non-resident for tax purposes.
What Types of Taxation Does Australia Have?
Australian Resident Income Tax Rates
In Australia, residents and non-residents are taxed at different rates. Below, you can see the rates for both. (All amounts are given in AUD.)
|$18,201–$37,000||9 cents (c) for each $1 over $18,200|
|$37,001–$90,000||$3,572 plus 32.5c for each $1 over $37,000|
|$90,001–$180,000||$20,797 plus 37c for each $1 over $90,000|
|$180,001 and over||$54,097 plus 45c for each $1 over $180,000|
Note: the above rates do not include the 2% Medicare levy.
Foreign Resident Tax Rates
|Taxable Income||Tax Rate|
|0–$90,000||32.5c for each $1|
|$90,001–$180,000||$29,250 plus 37c for each $1 over $90,000|
|$180,001 and over||$62,550 plus 45c for each $1 over $180,000|
Note: Foreign residents do not pay the 2% Medicare levy.
Capital Gains Tax
Capital gains are taxed in Australia, but they are considered part of the standard income tax rather than a separate category. As such, capital gains are taxed at the same rates as income.
Capital losses can be claimed to reduce taxes on capital gains, but not used to offset any other forms of income.
Australia’s capital gains tax does not apply to assets received through the transference of an estate. Capital gains are only incurred if you later sell the asset you acquired.
Goods and Services Tax
The goods and services tax (GST) is a value-added tax that applies to most transactions involving goods and services. The GST is applied at a flat rate of 10%.
Business owners with more than 75,000 AUD in receipts will have to register with the government and collect this tax.
Tourists to Australia are eligible for a refund of the GST that they paid upon the presentation of the items and receipts when exiting the country.
In Australia, companies do not necessarily have to be incorporated to be considered a corporation for tax purposes. All that is required is that the company carries out business in Australia, with Australian ownership or control.
The Australian corporate tax rate depends on the size of the company.
- For companies with a turnover of less than 50 million AUD, the corporate tax rate is a flat 27.5%
- For companies with a turnover higher than 50 million AUD, the corporate tax rate is a flat 30%
Like the US, Australia has a social security system in place to provide for its citizens and residents. This could lead to confusion over which system a US expat living in Australia should contribute to. Fortunately, the US-Australia totalization agreement establishes rules for social security contributions.
- If a US company assigns you to work in Australia for less than five years, you will pay into US Social Security.
- If the assignment exceeds five years, you will pay into the Australian social security.
- If you are working for an Australian employer in Australia, you will pay into the Australian social security.
Self-employed Americans living abroad in Australia may choose to contribute to either social security system.
Superannuation is Australia’s version of a pension system and is partly mandatory and partly voluntary. Beyond salary and wages, the government has minimums for both employers and employees to meet to fulfill superannuation requirements. The current rate is 9.5%, but this will increase to 12% by 2025.
Employee investments are both funded and vested.
Superannuation funds can make filing expat taxes extra complicated. The IRS typically treats these funds as grantor trusts or employee benefit trusts, so they are not considered qualified retirement plans, though they operate very similarly to a 401(k). Anyone who has control over these funds will encounter additional IRS reporting requirements.
Does the US Have a Tax Treaty with Australia?
Under the treaty, residents of Australia who earn income in the United States are subject to reduced tax rates and vice versa. The country of residence achieves this by providing a tax credit for taxes paid to the other country through a process known as tax sparing.
The tax treaty between the United States and Australia has undergone several updates, most recently in 2019. The updated treaty includes provisions on the taxation of capital gains, pensions, and social security payments.
It is essential for individuals and businesses that operate in both countries to understand the tax treaty’s provisions to ensure compliance with tax laws and to take advantage of potential tax benefits. The treaty also provides a mechanism for resolving tax disputes between the two countries, which can help prevent double taxation and promote a favorable business environment.
Does the US Have a Totalization Agreement with Australia?
Yes, the United States does have a totalization agreement with Australia. The agreement is officially called the Social Security Totalization Agreement and was signed in 2001. The purpose of the agreement is to eliminate dual social security coverage for individuals who work in both countries, which can result in a loss of benefits and confusion about eligibility requirements.
The agreement coordinates the social security systems of both countries to ensure that individuals who have worked in both countries receive the benefits they are entitled to. The agreement applies to both US and Australian citizens and permanent residents who have worked or are currently working in either country. It is important to note that the agreement only covers social security contributions, not other taxes or benefits such as healthcare or pensions.
What Tax Forms Do Americans Living in Australia Have to File?
Australian Tax Forms for Expats
In Australia, the primary income tax form is NAT 2541. This is Australia’s equivalent of IRS Form 1040.
Unlike in the US, the Australian tax year starts on July 1 and ends on June 30 of the following calendar year, and the deadline for filing your Australian income tax return is generally October 31 after the end of the tax year.
Extensions are available for taxpayers in certain situations for exceptional and unforeseen circumstances, such as those affected by natural disasters or even those who volunteered to aid victims of natural disasters.
If you hire a registered tax agent before October 31, the filing deadline is automatically extended to June 5 of the following year.
Keep quarterly statements of all your income documents, including superannuation fund statements. Since the Australian tax year is different from the American tax year, the year-end statements that are provided are less helpful than quarterly statements.
US Tax Forms for Expats in Australia
IRS Form 1040: Individual Income Tax Return
Form 1040 is the standard US individual income tax return. Every US citizen is required to file this form regardless of where they live in the world.
The due date for Form 1040 is typically April 15 (April 18th, 2023), but in the case of expats, that due date is automatically extended to June 15th, 2023 (You can also request a further extension to October 16th, 2023.)
IRS Form 8938: Statement of Specified Foreign Financial Assets (FATCA)
As an expat, if you own non-US financial assets above certain thresholds, you must file a FATCA report. The specific threshold for your finances will depend on your filing status and whether you qualify as a bona fide resident of Australia.
If you are required to file a FATCA report, attach it to your Form 1040 once you’ve completed it and file them together.
FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR)
If you have a total of at least $10,000 in a non-US bank account, you’ll have to report it by filing FinCEN Form 114, better known as FBAR. (This applies whether the money is in a single account or spread out over multiple.)
You should file the FBAR electronically using the FinCEN BSA E-Filing System. The standard due date for the FBAR is April 15, but if you miss that deadline, there’s an automatic extension until October 16.
What Tax Deductions Are Available for Expats Living in Australia?
Because of the US-Australia tax treaty, most Americans living in Australia are already exempt from double taxation. However, the IRS also provides several other potential tax credits and deductions for expats, such as:
- Foreign Earned Income Exclusion
- Foreign Tax Credit
- Foreign Housing Exclusion (or Deduction)
Most expats who use these tax credits are able to erase their US tax debt entirely.
Navigating Tax Compliance for US Expats in Australia
Navigating tax compliance as a US expat in Australia can be a complex and confusing process. However, it is crucial to ensure that you are filing your taxes correctly and on time to avoid any legal or financial penalties.
Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.