Expat Tax for Americans in Australia – What You Need To Know

Expat Living In Australia

Living overseas in Australia will be an interesting experience and an opportunity to immerse yourself in a country whose lifestyle is very much driven by outdoor pursuits and a spirit of multiculturalism. Australia has long been a destination of choice for professionals around the world. However, one major downside to expat tax in Australia is the high cost of living. Both Sydney and Melbourne rank among the top most expensive places to live. Some of the must-see places to see and visit include:

• Sydney
• The Great Barrier Reef
• Queenstown
• Melbourne

Moving to Australia provides the expat with a very good quality of life (irrespective of the cost of living). There are plenty of jobs at a variety of levels. Below is a list of our top 10 most attractive Australian cities for foreigners to reside in (in no particular order):

• Perth, Western Australia
• Sydney, New South Wales
• Melbourne, Victoria
• Brisbane, Queensland
• Adelaide, South Australia
• Cairns, Queensland
• Canberra
• Darwin, Northern Territory
• Gold Coast, Queensland
• New Castle, New South Wales

Guide To US Expat Tax In Australia

The Tax Samaritan country guide to US expat tax in Australia provides a general review of the tax environment of Australia. And how that will impact your U.S. expatriate tax return as a U.S. Expat In Australia.

As a U.S. taxpayer, all worldwide income is subject to taxation and reporting.

For most expatriates you have a requirement to file a U.S. tax return on on April 15 each year. There is an automatic extension to June 15 if you are residing overseas on the April 15 deadline.

The tax treatment for different classes of income can vary greatly from Australia and the U.S. For example, certain benefits may be tax free or eligible for exclusion from taxable income in the Australia. But, in the U.S. these benefits are likely to be “non-qualified” benefits that are subject to inclusion as taxable income in U.S.

As such, there are a number of considerations related to US expat tax in Australia. This brief article will address a few of those considerations.

Australia Expat Income Taxes

Who Is Liable For Income Taxes In Australia

In Australia, Australian residents are subject to Australian tax on worldwide income. Nonresidents are subject to Australian tax on Australian-source income only. An exemption from Australian tax on certain income is available for individuals who qualify as a temporary resident.

Temporary residents are generally exempt from Australian tax on foreign-source income (including foreign investment income but not foreign employment income) and capital gains realized on assets that are not taxable Australian property (TAP).

Who Is An Australia Tax Resident

The Australian tax treatment differs for residents, nonresidents and temporary residents.

A resident is a person who resides in Australia according to the ordinary meaning of the word. It includes a person who meets either one of the following conditions:

• Someone whose domicile is in Australia. Unless, the tax authority accepts that the person’s permanent place of abode is outside Australia.
• Someone who is present in Australia continuously. Or, intermittently for more than half of the tax year. Unless, the tax authority accepts that the person’s usual place of abode is outside Australia and that the person does not intend to reside in Australia.

Thus, meeting the residence tests is relatively easily.

For example, a person who is in Australia for employment purposes for as little as six months may be a resident in Australia for tax purposes. Whereas, a non-resident is a person who does not satisfy any of the above tests.

To confirm your Australian tax residency, you could use the Residency Research Tool by our partner firm, Worldwide Accountancy. 

Tax Year In Australia And Tax Filing And Payment Rules

The tax year in Australia is a fiscal year of July 1 thru June 30. Tax returns are due by October 31.

At Tax Samaritan, we can guide you with the compiling and proper reporting of your tax return information on a calendar-year basis. We have many clients that face the challenge of acquiring information based on a calendar year. As our client we will share with you our tips and tricks for acquiring your required calendar year tax information.

Expat Tax Withholding In Australia

The tax year in Australia is January 1 to December 31. Foreigners must register with the local tax bureau.

Although the recipient of income is responsible for payment of income tax. It is generally done through a withholding system under which the payer is the withholding agent.

What You Need To Know About Living And Working In Australia For Your U.S. Expat Tax Return

When dealing with US expat tax in Australia, there a number of preferential expat tax treatments.

Each of which may benefit your U.S. expatriate tax return. In fact, for many U.S. expats it will reduce your U.S. taxes to zero.

Some of these preferential tax treatments or benefits for US expat tax in Australia include the:

• If you are a U.S. citizen or a resident alien of the United States and you live in Australia, US expat tax in Australia is based on your worldwide income and as such must file a U.S. return for all the years that you are residing in Australia. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings that is adjusted annually for inflation. In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion.
• When it comes to US expat tax in Australia, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and Australia. A U.S. taxpayer working overseas in Australia may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.

Common Mistake

A common but dangerous mistake is the assumption that if there is a zero U.S. tax liability with these tax benefits that there is no filing requirement for a US expat tax return while in Australia. That is not true.

If you are working overseas, it is likely that you meet the filing requirements to file a tax return. It is important to note that the preferential tax treatments, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability until they are claimed on a filed tax return.

When faced with US expat tax in Australia there are many tax items to consider.

But, the above are by far the most common preferential tax benefits. With top-notch experience and knowledge of expat tax preparation from Tax Samaritan, we can assure that you are paying the least amount of U.S. taxes that you are legally obligated for.

Australia Foreign Bank Account Reporting – The FBAR (FinCen Form 114)

Another important tax deadline that frequently applies to US expat tax in Australia is in regards to the disclosure of foreign assets on the FBAR. Known as the FinCen Form 114.

The FBAR filing deadline is April 15th (or the preceding business day if April 15th falls on a weekend). Fortunately, for the last few years an automatic extension to October 15th has been available for the FBAR deadline. Any filings after this date are known as a delinquent FBAR.

The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements. This is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.

If you have bank accounts at Northern Australia Bank, Commonwealth Bank, Westpac, Australia and New Zealand Banking Group (ANZ) or at another bank in Australia or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.

U.S. – Australia Social Security Totalization Agreement

Australia also has a compulsory private superannuation (pension) contribution system.

Under this system, employers must contribute a minimum percentage of the employee’s earnings base to a superannuation fund for the retirement benefit of its employees. For the 2013-14 tax year, the minimum percentage is 9.25%.

The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements are taken into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country.

Australia has entered into a Totalization Agreement with the United States.

Thus, there is opportunity to avoid double taxation of social security income for US expat tax in Australia.

It may be possible to keep the US expat in the US social security system under a certificate of coverage issued by the US and therefore remove the obligation to make the Australian superannuation contributions outlined above.

Click here to read more on the US – Australia Totalization Agreement and the benefit for your US expat tax in Australia.

U.S.- Australia Tax Treaty And Tax Relief For US Expat Tax In Australia

The U.S. currently has a tax treaty with Australia. Please click on the link to the U.S. – Australia Tax Treaty.

Qualified Dividends In Australia For Your Foreign Corporation or Investment

Since 2003, dividends paid to individual shareholders from either a domestic corporation or a “qualified foreign corporation” (forco) are subject to tax at the reduced rates applicable to certain capital gains.

A qualified foreign corporation includes certain foreign corporations that are eligible for benefits of a comprehensive income tax treaty with the U.S.

Australia forco’s are eligible for this lower “qualified” dividend rate and it can be a significant benefit.