Taxes for American Expats Living in Australia
Australia has a progressive income tax system with rates ranging from 0% to 45% based on income levels. Goods and Services Tax (GST) of 10% applies to most goods and services, and Capital Gains Tax (CGT) applies to asset sales, with some tax benefits for residents. Other relevant taxes include Fringe Benefits Tax (FBT) and Pay-As-You-Go (PAYG) withholding.
Tax residency is crucial for determining tax obligations. Residency tests include the Resides Test, Domicile Test, and 183-Day Test. US citizens must also report worldwide income to the IRS, regardless of their Australian residency status.
The treaty helps prevent double taxation and provides tax relief through foreign tax credits, reduced withholding tax rates on dividends, interest, and royalties, and specific provisions for employment income and pensions.
Australian employers contribute to superannuation, but US tax treatment differs from Australian tax rules. Superannuation contributions and earnings may be subject to US taxes, and distributions can trigger US tax implications.
Individual tax returns are due by October 31, with possible extensions to May 15 if using a registered tax agent. US expats must also adhere to US tax deadlines, filing by June 15 with the option for further extensions
Self-employed US expats in Australia are taxed on business profits and may need to make quarterly PAYG payments. They must also report their Australian income on US tax returns to avoid double taxation.
Specialized tax services are essential for navigating both US and UK tax systems. Universal Tax Professionals offers integrated US and UK tax filing through partnerships with UK tax firms, ensuring seamless tax management and compliance.
Australia has a progressive tax system, meaning tax rates increase as income rises. The primary taxes that expats need to be aware of include:
| Taxable Income | Tax Rate |
| $0 - $18,200 | 0% |
| $18,201 - $45,000 | 19% |
| $45,001 - $120,000 | 32.5% |
| $120,001 - $180,000 | 37% |
| Over $180,000 | 45% |
Non-residents are taxed at different rates, beginning at 32.5% for income over $120,000 without the tax-free threshold.
Australia imposes a Goods and Services Tax (GST) of 10% on most goods and services sold or consumed. This tax is similar to the VAT systems in many countries and affects all consumers, including expats.
Capital gains tax applies to profits made from selling assets, such as property or stocks. Residents may be eligible for a 50% discount on CGT if they hold the asset for more than 12 months, whereas non-residents are generally taxed at the full rate.
Determining your tax residency is crucial for understanding your tax obligations in Australia. The Australian Taxation Office (ATO) uses a residency test based on various criteria, including:
It’s essential to accurately assess your residency status, as it affects how your income is taxed. American expats working in Australia should be aware that the US taxes its citizens on worldwide income, meaning they must report their income from both US and Australian sources.
The US-Australia Tax Treaty, officially known as the Convention Between the Government of the United States of America and the Government of Australia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, was signed in 1982 and has been amended multiple times. This treaty aims to prevent double taxation, promote cooperation between the two countries in tax matters, and enhance the exchange of information to combat tax evasion.
The primary objectives of the US – Australia Tax Treaty include:
The US – Australia Tax Treaty allows for foreign tax credits to help mitigate the effects of double taxation. US taxpayers can claim a credit on their US tax return for income taxes paid to the Australian government. This means that if you are paying taxes in Australia, you can offset those amounts against your US tax liability, reducing the overall tax burden.
Residence and Tax Residency – The treaty defines residency rules to determine which country has taxing rights over a particular individual or entity. The treaty outlines specific tests to determine residency, including the “permanent home” test and the “center of vital interests” test. If individuals qualify as residents of both countries, the tie-breaker rules in the treaty determine their residency for tax purposes.
Dividends – Under the treaty, withholding tax rates on dividends are reduced. The standard withholding tax rate for dividends is generally 15% for US residents receiving dividends from Australian companies. However, if the US resident holds a significant interest (generally defined as at least 10% of the voting stock) in the Australian company, the withholding tax rate may be reduced to 5%.
Interest – The treaty provides for a reduced withholding tax rate on interest payments. The general withholding tax rate on interest payments is 10%, but it can be further reduced or exempt in certain situations, such as loans between financial institutions or government entities.
Royalties – The treaty also reduces the withholding tax rates on royalties, typically set at 10%. Royalties for the use of intellectual property, including patents and copyrights, are subject to these rates, allowing for better cash flow for businesses and individuals.
Pensions and Annuities – Pensions and annuities paid to residents of one country from the other country may be taxed in the country of residence, allowing for certain tax exemptions under specific conditions. For instance, US citizens living in Australia may be taxed on their US pensions in Australia, potentially at lower rates than they would face without the treaty.
Foreign Tax Credit (FTC) is that it can only be claimed on income taxes paid to a foreign government, not on other types of taxes such as social security or VAT. Additionally, the FTC cannot be claimed on income that has been excluded under the Foreign Earned Income Exclusion (FEIE).
Superannuation is a retirement savings system established in Australia, requiring employers to contribute a percentage of an employee’s earnings into a superannuation fund. Key features of superannuation include:
Generally, individuals can access their superannuation savings upon reaching the preservation age (between 55 and 60 years, depending on the individual’s birth date) or upon retirement.
American expatriates need to be aware of how the US Internal Revenue Service (IRS) treats Australian superannuation for tax purposes. Here are the key points regarding US taxation of superannuation:
Reporting Requirements
US citizens are required to report their worldwide income to the IRS, including any income derived from superannuation. This includes contributions made by employers and any earnings generated within the superannuation fund.
Form 8938: If the total value of an American expatriate’s foreign financial assets, including superannuation, exceeds certain thresholds, they may be required to file Form 8938, “Statement of Specified Foreign Financial Assets,” along with their tax return.
Under US tax law, contributions to Australian superannuation funds may not qualify for the same tax benefits as contributions made to US retirement accounts. Specifically:
Taxation of Employer Contributions: Employer contributions to superannuation are generally considered taxable income for US tax purposes, even though they may be exempt from tax in Australia.
Deductibility of Contributions: US citizens working in Australia may not be able to deduct contributions made to superannuation accounts on their US tax returns, as these contributions do not qualify as contributions to US retirement accounts.
Investment earnings generated within the superannuation fund may be subject to US tax:
Taxation of Earnings: Earnings from superannuation investments may be taxed in the US at the individual’s ordinary income tax rate when distributed.
No Special Tax Treatment: Unlike US retirement accounts, which benefit from tax deferral until withdrawals are made, superannuation does not receive the same treatment under US tax law.
Distributions from superannuation accounts can trigger US tax implications:
Tax on Withdrawals: When an American expats withdraws funds from their superannuation account, these distributions are subject to US income tax. The amount taxed will depend on whether the distribution is considered a normal payment or an early withdrawal.
Tax Withholding in Australia: Withdrawals from superannuation may also be subject to withholding tax in Australia, typically at rates that can be higher for non-residents. This can result in additional complexities for US citizens.
The general deadline for lodging individual tax returns in Australia is October 31 each year. This means that if you are reporting income earned during the financial year that ended on June 30, your tax return must be filed by October 31 of that same year.
American expats may seek the assistance of a registered tax agent to help prepare and lodge their tax returns. Engaging a tax agent can provide additional time to file:
Extended Deadline: If you use a registered tax agent, you may be eligible for an extended deadline, which can be up to May 15 of the following year. However, you must register with a tax agent before the October 31 deadline to qualify for the extension.
For self-employed individuals and businesses operating in Australia, tax return deadlines can vary based on the business structure:
Sole traders and partnerships typically follow the same deadlines as individuals. Tax returns are due on October 31, unless an extension is granted through a registered tax agent.
Companies in Australia have different deadlines. Generally, company tax returns must be lodged within four months after the end of the financial year, which would set the deadline for most companies at October 31. However, companies with a taxable income of over AUD 10 million have a deadline of February 28 for their tax return lodgment.
Companies in Australia have different deadlines. Generally, company tax returns must be lodged within four months after the end of the financial year, which would set the deadline for most companies at October 31. However, companies with a taxable income of over AUD 10 million have a deadline of February 28 for their tax return lodgment.
American expats living in Australia must also consider their US tax obligations:
US citizens must file their federal tax returns by April 15 each year. US expats automatically receive a two-month extension, giving them until June 15 to submit their taxes. If they still cannot meet that deadline, they can request an additional automatic extension until October 15.
To avoid double taxation, American expats may be able to claim a foreign tax credit for taxes paid to the Australian government, allowing them to reduce their US tax liability.
If you are self-employed in Australia, you are taxed on your business profits, not your total income. This means that after subtracting allowable business expenses, your net income is taxed at the same rates as individuals who are salaried employees.
It’s important to note that the Australian tax system requires self-employed individuals to file an annual tax return, similar to regular employees, but you may also be required to pay taxes in quarterly installments through Pay-As-You-Go (PAYG) if your income is substantial.
As an American expat, you must also report your Australian income on your US tax return. However, you can use provisions like the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit to reduce your US tax liability.
If you have self-employment income, you must report it on Schedule C in addition to filing Form 1040 for your US taxes. Schedule C details your business income and expenses, which is necessary to calculate your net profit or loss that will be subject to income tax and self-employment tax
If your business earns more than AUD $75,000 per year, you are required to register for and collect Goods and Services Tax (GST). GST is a 10% tax on most goods and services in Australia, including those sold by self-employed individuals.
Once registered, you must add 10% GST to your invoices and remit that amount to the Australian Taxation Office (ATO). You can also claim GST credits for business-related purchases, such as supplies and equipment, which helps reduce your overall GST liability
Quarterly Business Activity Statements (BAS) must be lodged with the ATO to report your GST collections and claims. Failure to comply with GST obligations can lead to penalties, so accurate record-keeping is critical for self-employed individuals in Australia.
One of the benefits of being self-employed is the ability to claim deductions on a wide range of business expenses, which can reduce your taxable income. Common deductions for self-employed individuals in Australia include:
As a self-employed individual in Australia, you are not required to contribute to superannuation (the Australian equivalent of a retirement account), but it’s recommended for long-term financial planning. Contributing to a superannuation fund allows you to build up retirement savings, and there are tax incentives for doing so. For example, contributions up to a certain limit may be tax-deductible, helping to reduce your overall tax burden.
One of the most common concerns for American expats is double taxation. While Australia taxes your income, the US also requires you to report and potentially pay taxes on your worldwide income.
In addition to income reporting, American expats may need to file specific forms such as FBAR (Foreign Bank Account Report) to disclose Australian bank accounts and Form 8938 to report foreign assets.
At Universal Tax Professionals, we’re knowledgeable about all the forms and deadlines you need to stay compliant with the IRS. Over the years, we’ve helped numerous Americans working in Australia manage their taxes efficiently, saving them time and avoiding costly penalties. Whether you’re self-employed, working for a company, or managing investments, we are here to simplify your tax process and provide peace of mind.
