Filing American Taxes as a US Resident in Australia – Essential Guide

Posted on by

Are you are American expat living in Australia? If yes; you have to file tax returns with both the US and Australian governments.

US expat tax filing in Australia is a complicated process. The United States is one the few countries that taxes its citizens and residents on their worldwide income, no matter where they live. Australia uses a different tax year from the US, increasing the complications further for the expats.

Who has to file taxes in Australia?

An Expat has to file an Australian tax return if their annual income is more than AUD 18,200. If one is filing as a resident they will have to report their worldwide income, not only the income that comes from an Australian source. However, with US –Australia tax treaty benefits, the ex-pats can avoid double taxation.

Non-residents must file a tax return if they have any Australian Source income with a minimum threshold. They are taxed at a higher rate than the residents and have to report only Australian source income and not worldwide.

American tax for US residents living in Australia

Who is a tax resident in Australia?

When working out taxes for US citizens living in Australia, it is important to know the residency status. Residency status has a major impact on Australian expat taxes. An Australian tax resident is someone who meets the standards of any of the following four tests-

  • Reside test: If someone lives permanently in Australia and has a settled or usual home in the country, they are considered as the resident under the resides test.
  • Domicile test: If the primary permanent domicile or home is in Australia, the person is considered a resident under the domicile test.
  • 183-day-test: If a person has spent at least 183 days in Australia, they are considered a resident under a 183-day test. However, an exception to this is if one establishes that your usual place of abode is outside Australia and that one has no intention of taking up residence in Australia.
  • Common Wealth Superannuation fund test: If a person is employed by the Australian government or an Australian company and is eligible to contribute to the public sector superannuation scheme or commonwealth superannuation scheme, then they are considered as a resident under the commonwealth superannuation fund test. The spouse and any children under the age of 16 of such person will also be considered as residents.

If the person does not meet any of the above qualifications, they are considered as a non-resident for tax purposes.

Australian US expats file taxes both American and Australian. When considering American tax for US residents living in Australia, many questions like ‘Do I have to file additional information to report to the IRS’? Or ‘How do my Australian financial accounts affect my filing’?

If you are an American working or living in Australia; you have a tax obligation in both the US and Australia. However, with many perks and tools, one can avoid double taxation and ensure they are not paying more than their fair share of taxes.

American Expatriate Tax Obligations Australia

Working in Australia can affect your taxes even if you do not live there for very long. The expat needs to report their foreign financial accounts and assets. US taxpayers with more than $ 10,000 in foreign bank or financial accounts including superannuation schemes are subject to FBAR filing and reporting needs. If they have assets valued at $ 200,000 and higher they may be subject to FATCA reporting requirements.

American Expats Double Taxation Avoidance US Australia

The US expats in Australia can take advantage of one of the two options to lower their taxes and avoid double taxation.

  • FEIE or the Foreign Earned Income Exclusion- This allows one to exclude their wages from US taxes. This option is available to those who meet certain time-based residency requirements. The Form 2555 excludes up to $ 126,500 of the foreign earned income from US taxation for the expats. The expats are required to pass either a physical presence test of 330 days in a foreign country or a bona fide residence test.
  • FTC or the Foreign Tax Credit- It lets the expat claim a credit for income taxes paid to a foreign government. The Form 1116 provides dollar-for-dollar credit for income taxes paid to Australia. It is useful if the expat’s income exceeds the FEIE limit or is not eligible for exclusion.
  • Foreign Housing Exclusion (FHE): It allows for additional deductions for housing expenses like rent, insurance, and utilities. It applies to only foreign earned income.

The tax rates in Australia are higher and it is favorable that American expats in Australia use the foreign tax credit. Choosing between FEIE and FTC depends on your income level and tax situation. If the Australian tax rate of an expat is higher than their US tax rate, the FTC is a better option.

Do US Expats in Australia need to file US taxes?

Yes, if you are a US citizen, green card holder, or resident alien living in Australia, you must file a US tax return, if your income exceeds the filing threshold. The IRS requires one to report income from all sources including wages, business income, investments, and rental income even if these earnings are already taxed in Australia.

foreign earned income Australia

What is the tax filing threshold for the US Expats in Australia?

  • If you are single, then the minimum income required to file is $ 14,600.
  • If you are married and filing jointly, then the minimum income required for filing is $ 29,200.
  • If the expat is married and filing separately, then the minimum income is $ 5.
  • If the US expat is self-employed the required minimum income is $ 400.

Even if the expats do not owe US taxes, failing to file their return or required information forms like FBAR can result in fines or penalties.

What are the key tax deadlines for US expats in Australia

The US tax deadlines for expats in Australia are –

  • The regular tax filing deadline is 15th April.
  • For automatic extension, the deadline is 16th June.
  • For extended deadline, if requested is 15th October.
  • FBAR or FinCEN 114 deadline is 15th April / 15th October.

How a USA expat tax expert will help US expats in Australia Navigate and File US Taxes?

Filing US taxes from Australia is challenging for many US expats living in Australia because of the complexities involved. The American tax system requires its citizens and Green Card Holders to file taxes no matter where they live. However, navigating the complexities of the US tax system can be overwhelming for many expats. Here comes the role of the professional expat tax expert to play.

  • Ensuring tax compliance with the US Tax System and Laws: Many US expats are not aware they must file annual tax returns with the IRS even if they live in Australia. A professional tax expert will ensure all the required documents are filed on time including –
  1. Form 1040 – It is required for all American citizens earning income.
  2. Foreign Earned Income Exclusion- Form 2555 allows the expats to exclude up to $ 126,500 of their foreign earned income Australia from US taxation.
  3. Foreign Tax Credit: Form 1116 helps reduce US taxes by crediting taxes paid in Australia.
  4. Foreign Bank Account Report: The FBAR –FinCEN form 114 requires expats who have over $ 10,000 in foreign financial accounts at any time during the year.

The professional expat tax expert ensures that Australian expats remain compliant and avoid potential fines for non-filing.

  • Avoiding Double Taxation: The US and Australia have a tax treaty that prevents double taxation. A professional tax expert will help Australian expats determine whether they qualify for tax treaty benefits and how to claim them effectively. The expert will guide the expats to leverage tax credits and exclusions, like FTC and FEIE, allowing them to reduce or even eliminate their US tax liability.
  • Managing US and Australian Tax deadlines: US expats living in Australia have to manage two different tax systems with different deadlines. The US tax return deadline is 15th April and the Australian tax return deadline is 31st October. A tax professional ensures the expats file the returns on time, helping one request extensions if needed.
  • Assistance with State Taxes: Some US states like California and New York require residents to file state tax returns even if they are settled in Australia. A dedicated tax professional can determine if they have any state tax obligations and help manage them.
  • Investment and Retirement Planning: If you have retirement accounts in the US or Australian superannuation, tax treatment can be complex. An expert can ensure proper reporting of retirement contributions and withdrawals. They provide advice to Australian expats on tax-efficient investment strategies and help them avoid unwanted tax penalties.
  • Resolve Tax Issues and IRS Audits: If you have missed tax filings or made mistakes in previous tax returns, an expat tax professional will help fix this issue. They will streamline filing compliance procedures that allow the expats to catch up on late tax returns without penalties. If the IRS questions about the tax filings of the expats, the tax expert will represent them in an IRS audit.
  • Business and self-employment taxes: If an Australian expat owns a business or works as a freelancer in Australia, tax filing becomes more complex. Working with a professional expat specialist is important. The tax expert will determine whether one needs to report their Australian business to the IRS. They help the expats understand self-employment tax obligations and structure the business and self-employment taxes of the ex-pats to avoid unwanted tax burdens.
  • Helping expats who have renounced US citizenships: Some US expats living in Australia consider renouncing US citizenship because of tax burdens. This process involves an exit tax if the network of the expats exceeds a certain threshold with a net worth exceeding $ 2 million. The tax expert will help the expats handle expatriation tax and renounce their US citizenship smoothly.

Filing US taxes from Australia is complex; however, working with the right US expat tax professional will simplify the process. The dedicated tax experts ensure compliance, helping them avoid double taxation, and reducing their tax burden through available credits, tax treaties, and exclusions. If you are a US expat living in Australia, consider consulting an experienced tax professional to navigate your US and Australian tax obligations effectively.

FAQs

  1. Do the US expats have to file taxes if they live in Australia?
    Yes, The US follows the citizenship-based taxation system under which every US citizen and Green Card holder must file a US tax return Form 1040 annually irrespective of where they live.
  2. Will the Australian US Expats be taxed twice on their income?
    No, if they do not take the benefit of tax credits and exclusions that include Foreign Earned Income Exclusion (FEIE), Foreign Tax Credit (FTC) and the US-Australia Tax Treaty all prevent double taxation. Work with a professional expat tax expert who will help you avoid double taxation.
  3. Do the US expats in Australia need to report foreign bank accounts?
    Yes, if they have over $ 10,000 in foreign accounts at any time during the year, they must file Foreign Bank Accounts Report- Form 114.
  4. What are the tax deadlines for US expats living in Australia?
    The US tax return deadline for the expats is 15th April which gets an automatic extension to 15th June with an optional extension to 15th October. For filing their Australian Tax return the US expats have the deadline of 31st October.
  5. Do the American Expats living in Australia have to pay their state taxes?
    It depends on their last US residence. Some states like New York and California require US expats staying in any part of the world to file their state taxes. It is advisable to work with a dedicated expat tax expert who will help you navigate your US expat and Australian taxes effectively.