Get to know the authorBright!Tax has partnered with Godiva Tax Services to offer a one stop shop US/Australian tax filing solution for US Expats living in Australia. In this article, Nick Smith, founder at Godiva Tax Services, explains everything US expats need to know about filing an Australian tax return.
US expats living overseas are required to file a US tax return detailing their worldwide income each year, no matter how long they have been outside the US.
As a result of this requirement, US expats typically have to file both in the US and their country of residence.
If you are one of the 100,000+ US citizens living in Australia, you will almost certainly need to file an Australian tax return and possibly pay taxes on your income to the Australian Tax Office, or ATO, the Australian equivalent of the IRS.
Unlike in the US, the Australian tax year runs from July 1st to June 30th each year, rather than Jan 1st to December 31st.
The key tax return filing date in Australia is October 31st. The ATO encourages the use of agents to assist in tax preparation since it generally leads to a higher quality return. This encouragement is given via tax relief for tax preparation fees. Failure to file on time, or to pay taxes on time can lead to significant penalties though.
Before filing, US expats in Australia have to obtain a Tax File Number, or “TFN”. Australian residents who don’t have a TFN have taxes withheld from their salaries and investment income at a higher level than those who do.
Married couples cannot file a joint tax return, but each spouse must be declared on the other’s tax return.
Who has to File?
In general, Australian residents who have had any tax withheld at source, or who have any income that is untaxed at source but which is taxable, have to file with an Australian tax return.
Note that tax residency is different to the residency determination used for immigration or citizenship purposes. Regardless of your residency status however, if you have Australian sourced income you have to file a tax return with the ATO.
Residents
Dealing with 2 tax jurisdictions at the same time is inevitably complex, so it is highly recommended to seek expert advice for both your US and Australian tax filing, or, ideally, a one stop shop solution that can take care of both.
– Nick Smith, Godiva Tax Services
If you are considered an Australian tax resident, you must declare your worldwide income.
After the personal exemption of the first AU$18,200 of income, current (2017-18) Australian income tax rates are:
AU$18,200 – AU$37,000 (approx. US$14,000 – US$28,500): 19%
AU$37,001 – AU$80,000 (approx. US$28,500 – US$61,500): 32.5%
AU$80,001 – AU$180,000 (approx. US$61,500 – US$138,500 : 37%
AU$180,000+ (approx. US$138,500+): 45%
Non-Residents
If you are not considered an Australian resident for tax purposes, including those on some classes of working holiday visas, there is no personal exemption and slightly different tax brackets, however you only have to declare your Australia-sourced income, and you don’t have to pay Australian social security taxes.
Superannuation
Superannuation is a mandatory retirement savings, or pension, program, contributed to by both the employee and the employer. Employee contributions are voluntary, but employers are obliged to make a minimum contribution of 9.5% of the employee’s base wage if they earn more than $450 a month.
Superannuation accounts are similar to US 401k plans, where income going into the account is tax deferred until the funds and any earnings are withdrawn.
Australian social security taxes
In addition to income tax, there is also a social security levy of 2% of income. For those who do not maintain private health insurance that incorporates at least hospital cover, for the full year, there is an additional surcharge which can reach a further 1.5%.
Social Security / Totalization Agreement with the USA
The US and Australia have a Social Security Agreement which aims to prevent social security double taxation and which determines which country levies Social Security taxes on US and Australian citizens.
If you work for a US firm and you are sent to Australia to work for less than 5 years, you continue to pay US social security taxes, but if for more than 5 years, you pay Australian social security taxes.
If you work for a non-US employer however, you’ll just pay Australian social security taxes.
If you are a self-employed US citizen working for yourself in Australia, you don’t have to pay into the US system, though you do need to apply for a letter of exemption from the US Social Security Administration.
US-Australia Income Tax Treaty
While there is a US-Australian income tax treaty, it benefits Australian citizens living in the US more than American expats in Australia, and US expats still have to file and pay both US and Australian taxes. (The IRS has provided other measures such as the Foreign Tax Credit and the Foreign Earned Income Exclusion that can be claimed to prevent double taxation of the same income).
Summary
Dealing with 2 tax jurisdictions at the same time is inevitably complex, so it is highly recommended to seek expert advice for both your US and Australian tax filing, or, ideally, a one stop shop solution that can take care of both.
Bright!Tax has partnered with Godiva Tax Services to offer a one stop shop US/Australian tax filing solution for US Expats living in Australia. This means that you only have to provide your information once and deal with one organization! With the Australian filing deadline approaching, register today and let us help you with your Australian tax return too.
