US Expat Taxes for Americans Living in Australia – What You Need to Know
There are an estimated 105,000 Americans living in Australia.
Australia is an incredible place to live for a variety of reasons – the laid back culture, the warm climate, and the beaches to name just three. As an American expatriate living in Australia though, what exactly do you need to know regarding filing US expat (and Australian) taxes?
All US citizens and green card holders who earn a minimum of $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in Australia, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or $400 for self-employed individuals), you are required to file form 1040. While taxes owed are still due by April 15th, expats get an automatic filing extension until June 15th. This can be extended still further online until October 15th.
If you have foreign assets worth over US$200,000 (per person), excluding your home if it is owned in your own name, you must also file a form 8938 declaring them.
If you had more than US$10,000 in total in one or more foreign bank accounts at any time during the tax year, you are also required to file FinCEN form 114, otherwise known as an FBAR (Foreign Bank Account Report).
“A non-resident company is taxed on its Australian source income at the same rate as a resident company.” – The Australian Trade and Investment Commission.
If you are paying income tax in Australia, there are several mechanisms that allow you to avoid paying tax on the same income to the IRS too. The two primary ones are the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can demonstrate that you are an Australian resident, and the Foreign Tax Credit, which gives you a dollar tax credit for every dollar of tax you’ve already paid in Australia. The Foreign Tax Credit is typically a better option if you pay more tax in Australia than you would to the US, as you can carry the excess credits forward for future use. Remember though, even if you don’t owe any tax in the US, if your income is above US$10,000 (or $400 for self-employed individuals) you still have to file.
The US and Australian governments share taxpayer info, while Australian banks pass on US account holders’ account info to the IRS, so it’s not worth considering hiding or being economical with the truth. The penalties for tax evasion for expats are tough to say the least.
If you’re a US citizen, green card holder, or dual citizen and you have lived in Australia for a while but didn’t know you needed to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without facing any penalties. It’s better not to put this off though, lest the IRS finds you first.
Australian taxes – what you need to know
The Australian tax year runs from July 1st to June 30th. Australian tax returns are due by October 31st following the end of the tax year. The Australian equivalent of the IRS is called ATO (the Australian Taxation Office).
Americans are considered resident for tax purposes in Australia if they are domiciled there (i.e. have permanent residence or Australia is the center of their economic, social, or business interests), or if they spend at least 183 days in Australia in a year.
Australian income tax rates are relatively high compared to the US, at 0% – 45%, so for many people it will make sense to claim the Foreign Tax Credit. You can more find information on Australian income tax rates here.
We strongly recommend that if you have any doubts or questions about your tax filing situation as a US expat living in Australia, you contact an expat tax specialist.