US Expat Taxes Explained: Filing Taxes as an American Living in Australia
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US Expat Taxes in Australia
If you are a citizen or permanent resident of the United States, then you are obligated to file a tax return with the federal government each yearregardless of the country in which you reside.
In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.
While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:
- The foreign earned income exclusion allows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
- A foreign tax credit that could allow lower your tax bill on your remaining income by certain amounts paid to a foreign government, and
- A Foreign Housing Exclusion that allows an additional exclusion from income for certain amounts paid for household expenses that occur as a consequence of living abroad.
With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your tax bill. Please do note that even if you do not believe that you owe any US income taxes you will, most likely, still be required to file a return. For more information, see US Expat Taxes Explained: An Overview of Our New Series.
Australian Income Tax Rates
Australia, like the US, has a tax system that is both graduated and progressive. This means that as your income goes up, the tax rate on every additional dollar of income rises with it. Note that in Australia the tax tables for residents and non-residents are different. The definition of a resident for tax purposes could be different from the definition for residency purposes. In general, if you are a resident if you reside in Australia and are living there permanently. If you have lived and worked continually in Australia for more than six months and continue to live in the country, then you will be considered a resident unless you can prove otherwise. The rates for residents for the financial year, as taken from the Australian Taxation Office, are as follows:
|Income||Tax on Residents|
|AUD 0 – AUD 18,200||AUD 0|
|AUD 18,201 – AUD 37,000||AUD 0.19 per dollar above AUD 18,200|
|AUD 37,001 – AUD 87,000||AUD 3,572 + AUD 0.325 per dollar above AUD 37,000|
|AUD 87,001 – AUD 180,000||AUD 19,822 + AUD 0.37 per dollar above AUD 87,000|
|AUD 180,001 and up||AUD 54,232 + AUD 0.45 per dollar above AUD 180,000|
In addition, there is a 1.5% Medicare levy.
How Foreign Residents of Australia are Taxed
If you are not an Australian resident for tax purposes, then you are subject to the special rates below. Generally, if you have earned income (from employment or self-employment) in Australia and do not qualify as a resident then you are considered a foreign resident.
|Income||Tax on Non-Residents|
|AUD 0 – AUD 87,000||AUD 0.325 per dollar|
|AUD 87,001 – AUD 180,000||AUD 28,275 + AUD 0.37 per dollar above AUD 87,000|
|Over AUD 180,001||AUD 62,685 + AUD 0.45 per dollar above AUD 180,000|
Australian Tax Due Date
You must file (“lodge”) your Australian tax return by October 31. If you hire a registered tax agent, then you must have registered as a client with them by that date. Australia has a financial year that begins July 1 and ends June 30 the following year. This is important, as you will have to convert your income to a calendar year in order to file your US income tax return.
Australia’s Social Security Agreement with the United States
Employees in Australia are not subject to US Social Security taxes. Due to the US – Australia tax treaty (Totalization Agreement, in nerdy government-speak) self-employed expatriates in Australia are able to choose whether they would prefer to contribute social security to the US or Australia. For most Australian residents, their participation in a state sponsored retirement plan will be limited to the Superannuation Guarantee described below.
Superannuation in Australia
Superannuation is sort of like a mandatory 401(k) plan on a gargantuan scale. Employee contributions are voluntary, but employers must make a compulsory contribution of 9% of employees’ base wages. Employee contributions are tax-deductible for Australia but not for US taxes. As for the 401(k), access to superannuation funds are restricted to those who have reached retirement age or one of a number of special circumstances.
Is Foreign Income Taxed Within Australia?
Non-residents are not obligated to report their foreign earnings to Australia. Temporary residents may have to report foreign earned income but will not have to report earnings from investments or other passive income sources. Residents of Australia are required to report their global income. However, as in the United States, Australia has provided mechanisms to help alleviate double taxation.
US Tax Treaty with Australia
The US tax treaty with Australia can be reached here. The tax treaty defines the terms that set the relationship between the US and Australia and provides “tie-breaker” rules for determining in which country a taxpayer is considered a resident and is primarily of use to those who have doubts or want clarification as to their residency status. The bulk of the treaty relates to commerce and property, while also establishing the right of the respective governments to tax certain kinds of income based upon the jurisdiction in which it was earned.
Article 22 sets out the rules for relief from double taxation, most of which is summarized in this article. Also of note, the treaty excludes from double taxation the pension, social security, and annuity income that a resident receives while in his country of residency from taxation by the other country. This means that in some cases, if I am living in Australia and a resident of Australia but a citizen of the US, the income I receive from my Australian pension is excluded from my US tax return; in other cases, the savings clause of the US treaty overrides Article 22, requiring me to pay taxes on my Australian pension income.
What is the implication of being a self-employed American in Australia?
Corporate tax rates in Australia are a flat 30%, and company taxes must be pre-paid quarterly based upon your anticipated annual fee. Note that your corporation does not necessarily have to be incorporated in Australia for it to be considered an Australian corporation, but must only carry out business in Australia and have Australian ownership or control.
In Australia, businesses may be structured as sole traders, partnerships, trusts or companies and, as in the United States, all have different legal obligations and tax responsibilities.
Goods and Services Tax in Australia
The GST is a value added tax that applies to most transactions involving goods and services except for certain excluded items. It is a flat 10%. If you are a business owner with more than AUD$ 75,000 in receipts, then you will have register with the government and collect the taxes.
Tourists to Australia are eligible to receive a refund of the GST that they have paid over the previous month upon the presentation of the items and receipts upon exiting the country.