There are an estimated 110,000 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 a few. 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 whose worldwide income exceeds IRS minimum thresholds 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 that there are various exclusions and exemptions available to prevent you from paying tax on the same income to the IRS too.
Please note: Updates were made to capture changes for the 2022 tax year (read: the taxes you’ll file in 2023!)
US taxes for expats – what you need to know
If you earned over the minimum thresholds mapped out in the table below, then you are required to file Form 1040.
|Filing status||2022 tax year|
|Married, filing jointly||$25,900|
|Married, filing separately||$12,950|
|Head of household||$19,400|
While taxes owed are still due by April 15, expats get an automatic filing extension until June 15. This can be extended still further online until October 15 on request.
If you have foreign assets worth over $200,000 on the last day of the year or greater than $300,000 at any time during the year (per person), excluding your home if it is owned in your own name, you must also file a Form 8938 to declare them.
If you had a total of over $10,000 in one or in multiple 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 IRS provisions 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 $112,000 of your earned income from US tax, and the Foreign Tax Credit, which gives you US tax credits to offset the tax you’ve already paid in Australia.
The Foreign Tax Credit is typically a better option for American expats who pay more tax in their residing country than they would in the US. Further, they can carry over any excess US tax credits forward for future use. Even if you don’t owe any tax in the US though, if your income is above the IRS minimum thresholds, you still have to file.
Understanding the US-Australia Tax Treaty
There is a US-Australia Tax Treaty. However, it doesn’t prevent Americans living in Australia from having to file US taxes.
It does contain provisions that can benefit some Americans in Australia, though, such as students and those who receive retirement income.
For most types of income, the solution set out in the Treaty for US expats to avoid double taxation of their income arising in Australia is to claim US tax credits to the same value as Australian taxes that they’ve already paid on their income by claiming the IRS Foreign Tax Credit.
If they have income arising in the US, Americans in Australia can claim Australian tax credits against US income taxes paid to the IRS when they file their Australian tax return.
The United States – Australia Tax Treaty also covers corporation taxation, stating that a company will be taxed in the country where it is registered unless it has a ‘permanent establishment’ (meaning an office, factory, or branch, etc.) in the other country, in which case the permanent establishment’s profits will be taxed in the country where it is located.
It’s also worth mentioning that the United States – Australia Tax Treaty has a clause allowing the two countries to share tax information, meaning the IRS can see what Australian taxes American expats living in Australia are paying and vice versa. Australian banks also share their US account holders’ contact and balance info with the US Treasury, so it’s never worth being economical with the truth or ducking your responsibilities, as the IRS has global reach and penalties can be steep.
To claim a provision in the United States – Australia Tax Treaty (besides claiming US tax credits), expats should use IRS form 8833.
The US-Australia Totalization Agreement
A separate agreement called a Totalization Agreement allows US expats in Australia not to pay social security taxes to both the US and Australian governments. Instead, contributions made while in Australia can be credited to either system. Which country they pay to depends on how long they will be living in Australia.
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 residents for tax purposes in Australia if they are “domiciled” there – in other words, if they have permanent residence, if it’s 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. On the official government website, you can find more information on Australian income tax rates.
Catching up with the Streamlined Procedure
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.
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 a US expat tax specialist. Connect with a Bright!Tax CPA today to get started!